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Bubbles, Balloons, Needles and Pins

Oct 192018
 
 October 19, 2018  Posted by at 1:04 pm Primers Tagged with: , , , , , , , , , , , ,  7 Responses »


M. C. Escher Meeting (Encounter) 1940

 

It’s no surprise that China has its own plunge protection team -but why were they so late?-, nor that Beijing blames its problems on Trump’s tariffs. GDP growth was disappointing at 6.5%, but who’s ever believed those almost always dead on numbers? It would be way more interesting to know what part of that growth has been based on debt and leverage. But that we don’t get to see.

So we turn elsewhere. How about the Shanghai Composite Index? It may not be a perfect reflection of the Chinese economy, no more than the S&P 500 is for the US, but it does raise some valid and curious questions.

Borrowing from Wolf Richter, here are some stats and a graph::
• Lowest since November 27, 2014, nearly four years ago
• Down 30% from its recent peak on January 24, 2018, (3,559.47)
• Down 52% from its last bubble peak on June 12, 2015 (5,166)
• Down 59% from its all-time bubble peak on October 16, 2007 (6,092)
• And back where it had first been on December 27, 2006, nearly 12 years ago.

 

 

The first thing I thought when I saw that was: how on earth is it possible that in an economy that’s supposedly been growing 6%+ for a decade, stocks have gone nowhere at all? And obviously the role of the Shanghai index is different from that of the S&P, the DAX or the FTSE, but at the alleged Chinese growth rate, the economy would have almost doubled in size in 10 years. And none of that is reflected in stocks?

 

 

And if you think Shenzhen is a better barometer of ‘real’ China, Tyler Durden had this graph yesterday. Not the same as Shanghai, but similar for sure.

 

 

But other aspects of the Chinese economy are perhaps more interesting, I think. China’s mom and pop are not typically in stocks. In the Zero Hedge article I took that graph from, there is also this:

“There’s a liquidity crisis in the stock market, and pledged shares are again starting to sound the alarm,” said Yang Hai, analyst at Kaiyuan Securities. [..] The fear is that if Beijing does nothing, the self-reinforcing liquidation is only set to get worse: with $603 billion of shares pledged as collateral for loans – or 11% of China’s market capitalization, – traders are increasingly concerned that forced sellers will tip the market into a downward spiral.

[..] China in June told brokerages to seek approval before selling large chunks of stock that have been pledged as collateral for loans, while the top financial regulator in August warned the industry that it’s closely watching corporate stock pledges. Neither of those warnings appears to have generated the desired outcome, and the result is that two-thirds of Shenzhen Composite stocks are now at 52-week lows or worse.

[..] what are investors to do in this time of panicked selling? Why demand more bailouts of course, like begging the National Team to step in and rescue them (just like in the housing market): “If there are no real policies to cure the array of problems and ailments in our market, no one will be willing to take the risk,” said Hai. “Authorities keep saying that there is room for more polices, but where are they?”

“It’s high time the state stepped in,” said Dong Baozhen, a fund manager at Beijing Tonglingshengtai Asset Management. “The national funds cannot just sit on the sidelines and watch this atmosphere of extreme pessimism.”

It’s this clamoring for the state to come to the rescue of people who are losing money that would appear to define China today, where there is a stock market and housing market, and many ‘investors’ making lots of money, but where the mentality still seems to lurk back to days of old whenever things don’t only go up in a straight line.

There was another report recently of people demonstrating outside a property developer’s office because the firm had lowered purchase prices by 30%. Those that had paid full price now stood to lose that 30%. This happens frequently, and it can get violent. Mom and pop are not in stocks, they are in real estate:

Property accounts for roughly 70 per cent of urban Chinese families’ total assets – a home is both wealth and status. People don’t want prices to increase too fast, but they don’t want them to fall too quickly either,” said Shao Yu, chief economist at Oriental Securities.

The Chinese are thinking about leaders from Deng Xiao Ping to Xi Jinping that it’s great if they steer the country in a direction where everyone can get rich, but when things go awry, it’s still Beijing’s task to solve the problems if and when they occur. I would expect the same kind of thing in many western countries where people have borrowed heavily into housing bubbles, I don’t see mass foreclosures in Sweden, Denmark, Holland, but bailouts of people who grossly overpaid.

But the Chinese go a step further in their demands from central government. And that is an enormous problem for Xi going forward. One crucial facet of all this is psychological: when people count on being bailed out by their government, they will take much more risk, borrow more, with higher leverage etc. If you allow people things like pledging shares to buy more shares, or homes, and shares fall, you have an issue.

China’s well-known for companies buying each other’s shares to appear viable. It’s also known for local governments borrowing heavily from shadow banks in order for party officials to look as if they’re performing real well.

Now of course, if Beijing keeps on presenting all those growth numbers that look so solid, it’s asking for it. Moreover, the Party has lost control over the shadow banks, and it couldn’t act to regain that control if it wanted. It could initiate a program to forgive debt owed to national banks, but what’s owed to the shadows will have to be paid. We’re talking many trillions.

The Party has let the shadows in, because it made its own debt numbers look so much better. But when this whole debt balloon, on which so much of the GDP growth has rested, and the roads to nowhere and empty apartment blocks and cities, starts to pop, who are the Chinese going to turn to? For that matter, who is Xi going to turn to?

Yes, much of the western wealth has turned into a mirage, but in that respect, too, China has done what we did in a fraction of the time. Trump’s tariffs may play a role in a slowdown, but wait until the western economies deflate their debt bubbles and stop buying much of China’s products.

Bubbles vs balloons, that seems a proper way to phrase this. And for better or for worse, Jerome Powell is hiking interest rates. There’s your Needles and Pins.

 

 

The Biggest Ponzi in Human History

Nov 012017
 
 November 1, 2017  Posted by at 2:44 pm Finance Tagged with: , , , , , , , , ,  7 Responses »


Jean-Léon Gérôme Slave market 1866

 

Here’s the story in a nutshell: Ultra low interest rates mark a shift away from people’s wealth residing in their savings and pension plans, and into to so-called wealth residing in their homes, which are bought with ever growing levels of debt. When interest rates rise, they will lose that so-called wealth.

It is grand theft auto on an unparalleled scale, and it’s a piece of genius, because while people are getting robbed in plain daylight, they actually think they’re winning. But as I wrote back in March of this year, home sales, and bubbles, are the only thing that keeps our economies humming.

We haven’t learned a thing since March, and we haven’t learned a thing for many years. People need a place to live, and they fall for the scheme hook line and sinker. Which in a way is a good thing because the economy would have been dead without that ignorance, but at the same time it’s not because it’s a temporary relief only and the end result will be all the more painful for it.

Whatever Yellen decides as per rates, or Draghi, it doesn’t really matter anymore, this sucker’s going down something awful. This is a global issue. Housing bubbles have been blown not only in the Anglosphere, though they are strong there, many other countries have them as well, Scandinavia, Netherlands, even Germany and France. It’s what ultra low rates do.

First, here’s what I said in March:

 

Our Economies Run On Housing Bubbles

What we have invented to keep big banks afloat for a while longer is ultra low interest rates, NIRP, ZIRP etc. They create the illusion of not only growth, but also of wealth. They make people think a home they couldn’t have dreamt of buying not long ago now fits in their ‘budget’. That is how we get them to sign up for ever bigger mortgages. And those in turn keep our banks from falling over.

Record low interest rates have become the only way that private banks can create new money, and stay alive (because at higher rates hardly anybody can afford a mortgage). It’s of course not just the banks that are kept alive, it’s the entire economy. Without the ZIRP rates, the mortgages they lure people into, and the housing bubbles this creates, the amount of money circulating in our economies would shrink so much and so fast the whole shebang would fall to bits.

That’s right: the survival of our economies today depends one on one on the existence of housing bubbles. No bubble means no money creation means no functioning economy.

 

 

What we should do in the short term is lower private debt levels (drastically, jubilee style), and temporarily raise public debt to encourage economic activity, aim for more and better jobs. But we’re doing the exact opposite: austerity measures are geared towards lowering public debt, while they cut the consumer spending power that makes up 60-70% of our economies. Meanwhile, housing bubbles raise private debt through the -grossly overpriced- roof.

This is today’s general economic dynamic. It’s exclusively controlled by the price of debt. However, as low interest rates make the price of debt look very low, the real price (there always is one, it’s just like thermodynamics) is paid beyond interest rates, beyond the financial markets even, it’s paid on Main Street, in the real economy. Where the quality of jobs, if not the quantity, has fallen dramatically, and people can only survive by descending ever deeper into ever more debt.

 

 

Australia’s housing boom has been a thing of beauty, with New Zealand, especially Wellington and Auckland, following close behind. UBS now says the Oz bubble is over. Prices are still rising quite a bit though.

Fresh New Zealand PM Jacinda Ardern has announced new policies to deter foreign buyers from purchasing more property in the country. She may not like what that does to the country’s economy. Most new Zealanders can no longer afford property in major centers, and forcing prices down this way will expose many present owners to margin calls and foreclosures.

Moreover, because Australian banks own their New Zealand peers, if the Aussie boom is really gone, these banks are going to get hit so hard they’ll take down New Zealand with them. Close your eyes and put your fingers in your ears.

 

Australia’s Housing Boom Is ‘Officially Over’

The housing boom that has seen Australian home prices more than double since the turn of the century is “officially over,” after data showed prices now flatlining, UBS said. National house prices were unchanged in October from September, while annual growth has slowed to 7% from more than 10% as recently as July, CoreLogic data released Wednesday showed. “There is now a persistent and sharp slowdown unfolding,” UBS economists led by George Tharenou said in a report. “This suggests a tightening of financial conditions is unfolding, which we expect to weigh on consumption growth via a fading household-wealth effect.”

An end to Australia’s property boom will be welcome news for first-time buyers, who have struggled to break into the market after surging prices propelled Sydney past London and New York to be the second-most expensive housing market. Less impressed may be property investors, already squeezed by regulatory lending curbs that drove up mortgage rates. The cooling housing market may encourage the Reserve Bank to keep interest rates at a record low. A rate hike would be undesirable as it would put further downward pressure on dwelling prices, said Diana Mousina, senior economist at AMP Capital Investors.

 

 

But perhaps a bigger, and more surprising, story is shaping up in the US. Looks like the American housing bubble is back with a vengeance. It’s always amusing to see claims that this is due to a lack of supply. The real problem is not supply, but artificially fabricated demand. Fabricated by low rates. Though the NAR is not known for its accuracy (it’s a PR firm), this Bloomberg piece is still relevant.

 

Homes Are Getting Snapped Up at the Fastest Pace in 30 Years

Homes are sitting on the market for the shortest time in 30 years, according to an annual report on homebuyers and sellers published today by the National Association of Realtors. The typical home spent just three weeks on the market, according to the report, which focused on about 8,000 homebuyers who purchased their home in the year ending in June. That was down from four weeks in the year ending June 2016 and 11 weeks in 2012, when the U.S. housing market was still reeling from the foreclosure crisis.

It was the shortest time since the NAR report began including data on how long homes spend on the market, in 1987. Buyers are snapping up homes quickly at a time when for-sale listings are in short supply, forcing them to compete. The number of available properties declined in September, according to NAR’s monthly report on existing home sales, marking the 28th consecutive month of year-on-year decline in inventory. In addition to moving fast, buyers also had to pony up to close the deal. 42% of buyers paid at least the listing price, the highest share since the NAR survey started keeping track in 2007.

 

Where the fine bubble plan runs astray is in affordability. Ultra low rates can encourage sales, but that also raises prices, and if and when wages do not keep up there must be a point where you hit a wall. In the US that wall is fast approaching, suggests Tyler Durden:

 

US Homes Have Never Been More Unaffordable

Just under a year ago, US home prices finally surpassed their prior all time highs, one decade after the 2006 bubble… and haven’t looked back since. Which, all else equal, would be great news for America, where the bulk of middle-class wealth is not in the stock market contrary to conventional wisdom, but in its biggest, and most illiquid asset-cum-investment: one’s home. There is just one problem: while house prices are once again hitting new all time highs every month, household incomes have failed to keep up; in fact, as the Political Calculations blog shows, in the past two years there has been a distinct trend in home affordability, or lack thereof.

[..] starting in September 2015, the TTM average median new home sale price in the U.S. has been rising at an average rate of $906 per month. That’s the good news; the bad news is that in terms of affordability, the ratio of the trailing twelve month averages of median new home sale prices to median household income in the U.S. has risen to an all time high of 5.454, which following revisions in the data for new home sale prices, was recorded in July 2017. The initial value for September 2017 is 5.437. In other words, the median new home in the US has never been more unaffordable in terms of current income.

 

 

Never more unaffordable is a bold statement, but it’s probably correct. The graph only goes back as far as 1987, but that should do. Another angle on the same issue, also from Tyler:

Home Prices In All US Cities Grow Faster Than Wages… And Then There’s Seattle

US national home prices are up 6.07% YoY in August – the fastest rate since June 2014. We note this data is for August – before the hurricanes. Seattle (up 13.2%), Las Vegas (up 8.6%), and San Diego (up 7.8%) were the top three cities in terms of year-over-year price appreciation; all cities showed gains of at least 3%. Pushing home prices to a new record high…

“Home-price increases appear to be unstoppable,” David Blitzer, chairman of the S&P index committee, said in a statement. “At the same time, “measures of affordability are beginning to slide, indicating that the pool of buyers is shrinking, and the Fed’s interest-rate hikes are likely to push mortgage rates higher over time, “removing a key factor supporting rising home prices,” he said.

 

 

There’s nothing anyone can do to raise wages, and while Yellen may claim not to understand why wages and inflation refuse to shine, it’s not that hard. Whatever is called a job these days is America didn’t use to be labeled that. We’ve all been conned into redefining what a job is, but the benefits and security and all that have still vanished. So what can people afford? They can’t even afford to rent anymore:

 

Renting In The US Has Never Been More Unaffordable

Over the weekend, when looking at the record high ratio in median new home sale prices to household incomes in the US, we concluded that US homes have never been more unaffordable for the average American. What about renting? Isn’t it intuitive that if buying a house has never been more expensive, then at least renting should be cheap(er). Unfortunately no, because not only is renting not cheap(er) in either absolute or relative terms, but when observed through the prism of the only thing that matters, namely disposable income, renting – just like buying a house – has never been more unaffordable.

 

 

Now remember what I said before: millions upon millions see their savings and pensions melt away before their eyes, while at the same time they are forced to spend ever more on housing costs. And when that scheme hits the wall, the economy will remember it’s alive only because of the housing bubble, and then croak. Leaving both renters and owners without jobs and eventually places to live.

A lovely example of where all this is heading comes from a Statista report on the Netherlands 3 weeks ago. The Dutch have tons of interest-only mortgages, just like the Australians, but you can take this graph as a general model for what many of not most countries that have low interest rates and thus housing bubbles, will face:

 

Heading Towards A Mortgage Crisis In The Netherlands?

Bank it or bust. In October 2017, the Dutch Central Bank (DNB) issued a warning on mortgages in the Netherlands. They claimed that almost 55% of the aggregate Dutch mortgage debt consisted of interest-only and investment-based mortgage loans, which did not involve any contractual repayments during the loan term. As prices in the the European housing, or residential real estate, market increase and mortgage rates decrease due the Asset Purchase Programme (APP) of the ECB, interest-only mortgages became more and more popular.

In addition, the Dutch government encouraged home ownership for many years, offering tax exemptions on Dutch mortgage payments alongside other benefits for homebuyers in the Netherlands. Consequently, the total mortgage debt from households in the Netherlands increased from approximately €548 billion in 2006 to approximately €664 billion in 2016. However, the debts must still be repaid when the interest-only mortgages expire.

The DNB stated there could be a risk that the households in question may not have the means to repay their debts before or when their loans expire, risking a new mortgage crisis. Lenders, they say, must actively alert customers to this risk and help them find a suitable solution. Unfortunately, the value of mortgages in 2017 is forecasted to increase with approximately 3.9% compared to 2016.

 

 

The debt accumulation is insane. Combine that with the wholesale erosion of savings and pensions, and you have an economy with either a lot of foreclosures and homelessness in its future, or a bankrupt banking system. More people should, before purchasing property, be shown graphs like that. But that would kill the bubble scheme, wouldn’t it?

Is there a way out of this mess? Well, there is in theory. Just grow your economy, and your wages etc., by let’s say 6.8% per year for decades on end. Problem with that is it’s possible only in a country like China, and that only because whatever Beijing says the growth rate is, goes. But that doesn’t make it real. Still, it entices Chinese grandmas into buying apartments.

What Beijing doesn’t tell them, or us, is how much debt the grandmas have gone into by now to buy all those new nice and shiny apartments. But since stocks and bonds are still not their thing, it’s all they have. Property in China is all on red. In the US about one quarter of household wealth is in housing, in China it’s three quarters.

 

 

So no, there’s no way out. My best guess is the first country to deal with this in an aggressive manner will be the -relative- winner. All others are goners. The governments and politicians who’ve lured their people into this biggest Ponzi in human history will probably be long gone when the house comes down, and if they know what’s good for them will have moved to some street with no name in a land far away.

 

 

The Only Real Europe is Greece

Sep 132017
 
 September 13, 2017  Posted by at 7:09 pm Finance Tagged with: , , , , , , , , , ,  2 Responses »


Eugene Delacroix Greece expiring on the Ruins of Missolonghi 1826

 

European Commission president Jean-Claude Juncker, famous for his imbibition capacity and uttering -not necessarily in that order- the legendary words “when it becomes serious, you have to lie”, presented his State of the Union today. Which is of pretty much limited interest because, as Yanis Varoufakis’ book ‘Adults in the Room’ once again confirmed, Juncker is nothing but ventriloquist Angela Merkel’s sock puppet.

But of course he had lofty words galore, about how great Europe is doing, and how that provides a window for more Europe, in multiple dimensions. Juncker envisions a European Minister of Finance (Dutch PM Rutte immediately scorned the idea), and he wants to enlarge the EU by inviting more countries in, like Albania, Montenegro and Serbia (but not Turkey!).

Juncker had negative things to say about Britain and Brexit, about Poland, Prague and Hungary who don’t want to obey the decree about letting in migrants and refugees, and obviously about Donald Trump: Brussels apparently wants ‘to make our planet great again’.

What the likes of Jean-Claude don’t seem to be willing to contemplate, let alone understand or acknowledge, is that the EU is a union of sovereign countries. The meaning of ‘sovereignty’ fully escapes much of the pro-EU crowd. And if they keep that up, it will break the union into pieces.

The European Court of Justice has ruled that Poland, the Czech Republic and Hungary must accept their migrant ‘quota’, as decided in Brussels, and that, too, constitutes an infringement on these countries’ sovereignty. And don’t forget, sovereignty is not something that can be divided into separate parts, some of which can be upheld while others are discarded. A country is either sovereign or it is not.

The single euro currency is already shirking awfully close to violating sovereignty, if not passing over an invisible line, and a European Finance Minister would certainly constitute such a violation. At some point, the politicians in all these countries will have to tell their voters that they’re about to surrender -more of- their sovereignty and become citizens of Merkel Land. But they don’t want to do that, because as soon as people would realize this, the pitchforks would come out and the union would be history.

The EU will be able to muddle on for a while longer, but Europe is not at all doing great economically (however, to maintain the illusion ECB head Draghi buys €60 billion a month in ‘assets’), and when the next crisis comes people will demand their sovereignty back. It really is that simple. And what will the negotiations look like to make that happen? 27 times Brexit?

 

The real Europe is not the one Juncker paints a portrait of. The real Europe is Greece. That’s where you can see the economic reality as well as the political one. Greece has no sovereignty left to speak of, despite the fact that it is guaranteed it in EU law. Europe’s political reality is about raw power. About the rich waterboarding the poor, to the point that they are turned from sovereign citizens of their countries into lost souls in debt prisons.

This week, another chapter has been added to the dismal annals of the Greek adventures in the European Union. It’s like the Odyssee, I kid you not. Like the previous chapters, this one will not solve the Greek crisis, or even alleviate it, but instead it will deepen it further, and not a little bit. This chapter concerns the forced auctioning of -real estate- properties.

Not to Greeks, 90% of whom can’t afford to buy anything at all, let alone property, but to foreigners, often institutional investors. At the same time, bad loans, including mortgage loans, will be offloaded for pennies on the dollar to that same class of ‘investors’. Once the Troika is done with this chapter, Greece will have seen capital destruction the likes of which the world has seldom if ever witnessed.

People in the country have a hard time understanding the impact:

Greece Property Auctions Certain To Drive Market Prices Even Lower

Ilias Ziogas, head of property consultancy company NAI Hellas and one of the founding members of the Chartered Surveyors Association, said that the property market is certain to suffer further as a result of the auctions: “The impact on prices will be clearly negative, not because the price of a property will be far lower at the auction than a nearby property, but because it will diminish demand for the neighboring property.”

[..]Giorgos Litsas, head of the GLP Values chartered surveyor company, which cooperates with PQH [..] told Kathimerini that the only way is down for market rates. “I believe that unless there is an unlikely coordination among the parties involved – i.e. the state (tax authorities, social security funds etc.), the banks and the clearing firms – in order to prevent too many properties coming onto the market at the same time, rates will go down by at least 10%.”

He noted that “we estimate the stock of unsold properties of all types comes to 270,000-280,000, in a market with no more than 15,000 transactions per year. Therefore the rise in supply will send prices tumbling.” Yiannis Xylas, founder of Geoaxis surveyors, added, “I fear the auctions will create an oversupply of properties without the corresponding demand, which translates into an immediate drop in rates that may be rapid if one adds the portfolios of bad loans secured on properties that will be sold to foreign funds at a fraction of their price.”

A 10% drop? Excuse me? Even in the center of Athens, rental prices for apartments that are not yet absorbed by Airbnb have plummeted. With so many people making just a few hundred euro a month that is inevitable. You can rent a decent place for €200 a month, and if you keep looking I’m sure you can find one for €100. An 80% drop?! But property prices would only go down by 10% in a market that has 20 times more unsold properties than it sells in a year?

The Troika creditors found they had to deal with attempts to prevent the wholesale fire sale of Greek properties. They now think they’ve found the solution. First, they will force the government to lower official valuations concerning the so-called “primary residence protection”, which protected homes valued at below €300,000 from foreclosure. Second, they will bypass the associations of notaries who refused to cooperate in ‘physical’ auctions, as well as protesters, by doing the fire sale electronically:

E-Auctions Of Foreclosed Property For First Time This Month In Greece

Environment and Energy Minister Giorgos Stathakis confirmed the development in statements to a local television station, announcing the relevant justice ministry is ready to begin electronic auctions in the middle of next week.At the same time, Stathakis noted that a law protecting a debtor’s primary residence from creditors will be expanded until the end of 2018. According to reports, the e-auctions will take place every Wednesday, Thursday and Friday over a four-hour period, i.e. from 10 a.m. to 2 p.m. or 2 p.m. to 6 p.m. Some 5,000 foreclosed commercial properties will be up for sale by the end of the year, which translates into 1,250 properties per month, on average.

Currently, the primary residence protection against foreclosure extends to properties valued (by the State tax bureau) at under €300,000, a very high threshold that shields the “lion’s share” of mortgaged residential real estate in the country, if judged by current commercial property values in Greece. Creditors and local lenders have called for a decrease in the protection threshold, a prospect that is very likely.

The development is also expected to generate another round of acrimonious political skirmishing, given that both leftist SYRIZA, and its junior coalition partner, the rightist-populist Independent Greeks party, rode to power in January 2015 on a election campaign platform that included an almost universal protection of residential property from bank foreclosures and auctions.

Associations representing notaries – professionals who in Greece are law school graduates specializing in drawing up contracts and maintaining registries of deeds, property transactions, wills etc. – had also blocked old-style auctions from taking place in district courts by ordering their members not to take part. The e-auction process aims to bypass this opposition, as well as disruptions and occupations of courtrooms by anti-austerity protesters.

The claim is that Greek banks must be made healthy again by removing bad loans from their books. The question is if selling both properties and bad loans to foreign institutional investors for pennies on the buck is a healthy way to achieve that. But yeah, if 50% of your outstanding loans are bad, you have a problem. Still, at the same time, the problem with that is that many if not most of those loans have turned sour because of the neverending carrousel of austerity measures unleashed upon the country. It’s a proverbial chicken and egg issue.

If Brussels were serious about Greek sovereignty, it would make sure that Greek homes were to remain in Greek hands. You can’t be sovereign if foreigners own most of your real estate. By bleeding the country dry, and forcing the sale of Greek property to Germans, Americans, Russians and Arabs, the Troika infringes upon Greek sovereignty in ways that will scare the heebees out of other EU nations.

It’s not for nothing that the entire Italian opposition is talking about a parallel currency next to the euro. That is about sovereignty.

5,000 Greek Properties Under the Electronic Auction System by End of 2017

Auctions of foreclosed properties to settle bad debts are seen as key to returning Greek banks to health by helping reduce the burden of non-performing loans. These currently stand at roughly €110 billion, or 50% of the banks’ total loans. Under pressure from its lenders, in the summer of 2016 the Greek government passed measures allowing the sale of delinquent mortgages and small business loans to international funds, a move seen by many as yet another betrayal by the SYRIZA-led government.

Greek banks won’t return to health, they’ll simply shrink the same way the people do who can’t afford to rent a home or eat decent food. Austerity kills entire societies, including banks. If Mario Draghi would decide tomorrow morning to include Greece in his €60 billion a month QE bond-buying program, and Greece could use that money to stop squeezing pensions and wages, and no longer raise taxes and unemployment, both the people AND the banks could return to health. It would take a number of years, but still.

 


Attica! Attica!

 

Whatever you call what happens to Greece, and what’s been happening for nearly 10 years now, whether you call it fiscal waterboarding or Shock Doctrine, it is definitely not something that has a place in a union of sovereign nations bound together in mutual respect and dignity. And that will ensure the demise of that union.

 

Another aspect of the fire sale is the valuation of the properties austerity has caused to crumble (so many buildings in Athens are empty and falling apart, it’s deeply tragic, at times it feels like the entire city is dying). The press calls it a hard task, but that doesn’t quite cover it.

It’s not just about mortgages, many Greeks simply give up their properties because they can’t afford the taxes on them. People that inherit property refuse to accept their inheritance, even if it’s been in their families for generations, and it’s where they grew up. In that sense, it may be good to lower valuations to more realistic levels. But tax revenues will plunge along with the valuations, and the government is already stretched silly. Add a new tax, then?

Greece Property Value Review A Hard Task

The government is facing a daunting task in adjusting the so-called objective values (the property rates used for tax purposes) to market levels by the end of the year, as its bailout agreement dictates. The huge slump in transactions and the forced sales of properties due to their owners’ debts do not lead to any safe conclusions for the values per area. One in four sales are conducted with prices that lag the objective value by 60-70%, and the prices of 2008 by 70-80%. The Finance Ministry must overcome all the obstacles to bring to Parliament all the necessary adjustments and regulations.

Moreover, once the objective values are brought in line with market rates, the government will have to maintain the same amount of revenues from the Single Property Tax (ENFIA) either by raising the tax’s rates or by introducing a new tax in the form of the old Large Property Tax.

Furthermore, once the objective values are reduced by 40-50% to match the going prices, banks may see problems with their capital adequacy, as lenders will incur losses by having to revise the collateral they get. Mortgage loans in Greece amount to €59.44 billion, of which 42%, or €25.4 billion are nonperforming.

Yeah, there’s the health of the banks again. And the government. And the people. A wholesale fire sale is the worst possible thing that could happen at this point in time. Greece needs help, stimulus, hope, not more austerity and fire sales. Juncker and his Berlin ventriloquist have this all upside down and backwards, squared. The one thing the EU cannot afford itself to do, is the one thing it engages in.

They may as well pack in the whole thing today, and go home. Actually, that would be by far the best option, because more of this will inevitably lead to the very thing Europe prides itself in preventing for the past 70 years: battle, struggle, war, fighting in the streets, and worse. If the EU cannot show it exists for the good and benefit of its people, it no longer has a reason to exist.

Saving the banks in the richer countries by waterboarding an entire other country is not just the worst thing they could have thought of, it’s entirely unnecessary too. The EU and ECB could easily have saved Greece from 90% of what it has gone through, and will go through going forward, at virtually no cost at all. But yes, German, French, Dutch banks would likely have had to cut the bonuses of their bankers, and their vulture funds couldn’t have snapped up the real estate quite that cheaply.

Summarized: the EU is a disgrace, morally, politically, economically. I know that French President Macron on the one side, and Yanis Varoufakis’ DiEM25 movement on the other, talk about reforming the EU. But the EU is the mob, and you don’t reform the mob. You dismantle their organization and then you lock them up.

 

 

Debt Rattle August 16 2017

Aug 162017
 
 August 16, 2017  Posted by at 8:57 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


Fred Stein Hydrant, New York 1947

 

• The Greatest Crisis In World History Is About To Be Unleashed (von Greyerz)
• After 100 Months of Buying The Dips – Peak Crazy (Stockman)
• China Has Got To Fix Its Debt Problem, IMF Says (CNBC)
• China Money Supply Growth Slips Again as Leverage Crunch Goes On (BBG)
• UK Risks ‘Losing Its Place As Property-Owning Democracy’
• The New American Dream: Rent Your Home From A Hedge Fund (Black)
• Trump Signs Order to Speed Up Public-Works Permits (BBG)
• German Challenge To ECB QE Asset Buys Sent To European Court (R.)
• Washington’s Long War on Syria (Ren.)
• Fish Confusing Plastic Debris In Ocean For Food (G.)

 

 

Debt leads to war.

• The Greatest Crisis In World History Is About To Be Unleashed (von Greyerz)

Totally irresponsible policies by governments and central banks have created the most dangerous crisis that the world has ever experienced. Risk doesn’t arise quickly as the result of a single action or event. No, risk of the magnitude that the world is experiencing today is the result of many years or decades of economic mismanagement. Cycles are normal in nature and in the world economy. And cycles that are the result of the laws of nature normally play out in an orderly fashion without extreme tops or bottoms. “Just take the seasons. They go from summer to autumn, winter and spring, with soft transitions that seldom involve drama or catastrophe. Economic cycles would be the same if they were allowed to happen naturally without the interference of governments.

But power corrupts and throughout history leaders have always hung on to power by interfering with the normal business cycle. This involves anything from reducing the precious metals content of money from 100% to nothing, printing money, leveraging credit, manipulating interest rates, taking total taxes from at least 50% + today from nothing 100 years ago etc, etc. Governments will always fail when they believe that they are gods. But not only governments believe they perform godly tasks but also hubristic investment bankers like the ex-CEO of Goldman Sachs who proclaimed that the bank was doing God’s work. It must be remembered that Goldman, like most other banks, would have gone under if they and JP Morgan hadn’t instructed the Fed to save them by printing and guaranteeing $25 trillion. Or maybe that was God’s hand too?

We now have unmanageable risks at many levels – politically, geopolitically, economically and financially. This is a RISK ON situation that is extremely dangerous and will have very grave consequences. There are numerous risks that can all cause the collapse of the world economy and they all have equal relevance. However, the political situation in the USA is very dangerous for the world. This the biggest economy in the world, albeit bankrupt with debt growing exponentially and real deficits every year since 1960. Before the dollar has collapsed, the US will still be seen as a powerful nation, although a massive economic decline will soon weaken the country burdened by debt at all levels, government, state, and private.

Read more …

“There is absolutely no reason for the stock markets to be at current levels, let alone melting-up day after day.”

• After 100 Months of Buying The Dips – Peak Crazy (Stockman)

Just call it Peak Crazy and move on. There is absolutely no reason for the stock markets to be at current levels, let alone melting-up day after day. The fact that this is happening is a measure of how impaired capital markets have become as a result of massive central bank intrusion. The robo-machines and day traders keep buying the dips because that has “worked” for the last 100 months. There is nothing more to it than residual momentum. Under a regime of honest money and price discovery, the stock market discounts the future. There is no plausible future from here that’s worth 24 times S&P 500 value or 96 times the Russell 2000. Surely the year-ahead earnings boom that Wall Street’s artists have penciled in is not in the slightest bit plausible. With 84% of the S&P 500 reporting Q2 results, LTM earnings are still 1.3% below where they were in September 2014.

Nothing has happened to corporate earnings in the last three years except deflation in the energy, materials and industrial sectors. After hitting $106 per share in September 2014, the global deflation cycle brought them to a low point of $86.44 per share in March 2016 in response to low $30s oil prices. The latter has since recovered to the $50 dollar zone – bringing S&P 500 earnings back to $104.61 during the current quarter. The question remains: How does an aging business cycle and immense global headwinds justify the expectation of a red hot earnings breakout during the next 18 months? Yet that’s what’s happening on Wall Street. We’ve hit nearly $133 per share of GAAP earnings (and $145 of the ex-items variety) for the LTM period ending in December 2018, meaning a prospective surge of 27%.

[..] In this machine driven market, any of these indices could resume their mad momentum based climb. But negative divergences are breaking out everywhere, and that’s usually a sign that the end is near. Margins on debt has again reached an all-time high of $550 billion. The chart below leaves little doubt as to what comes next. After the 2000 peak, margin debt collapsed by 50% as stocks were violently liquidated to meet margin calls. All this while in 2008 the shrinkage of margin debt was even larger – nearly 60%. This time, however, a similar shrinkage would cause a $325 billion decline in margin balances. That’s a lot of stocks on a fire sale.

Read more …

“..outstanding bank loans and total social financing, both of which rose roughly 13% in July versus the same period last year..”

• China Has Got To Fix Its Debt Problem, IMF Says (CNBC)

China’s economy is looking good enough that the IMF is raising its outlook, but the organization is doing so with a strong warning over growing debt in the world’s second-largest economy. The IMF issued its annual review of China on Tuesday, and has revised its growth forecast to 6.7% for 2017, which was up from 6.2%. The organization also said it expects China to average 6.4% growth between now and 2021, versus its previous estimate of 6%. Still, the organization warned that things were far from peachy. “The growth outlook has been revised up reflecting strong momentum, a commitment to growth targets, and a recovering global economy,” the IMF said. “But this comes at the cost of further large and continuous increases in private and public debt, and thus increasing downside risks in the medium term.”

What Beijing needs to do is to seize its current strong growth momentum “to accelerate needed reforms and focus more on the quality and sustainability of growth,” said the report. At the top of that list is working to tackle the debt issue: Going forward, the IMF sees China’s non-financial sector debt to hit nearly 300% of GDP by 2022, up from around 240% last year. Debt-fueled growth, the IMF warned, is a short-term solution that isn’t sustainable in the long run unless China tackles deeper structural issues. Experts have been sounding the alarm bell over this issue for years, urging China to rein in its old model of opening credit lines to fuel investment and spending and to find a better balance between supporting growth and controlling risks to the economy.

Chinese banks extended 825.5 billion yuan (about $123.44 billion) in new loans in July, down from 1.54 trillion yuan in June. Outstanding total social financing — a broad measure of credit and liquidity — came in at 1.22 trillion yuan last month versus 1.78 trillion yuan in June. Part of the drop is seasonal, and it’s “masking an uptick in underlying credit growth,” wrote China economist Julian Evans-Pritchard at Capital Economics. A better way to look at credit creation is to gauge growth in outstanding bank loans and total social financing, both of which rose roughly 13% in July versus the same period last year.

Read more …

As long as things look good for the Party Congress, who cares?

• China Money Supply Growth Slips Again as Leverage Crunch Goes On (BBG)

Growth in China’s broad money supply slipped to a fresh record low, signaling authorities aren’t letting up in their drive to curb excess borrowing and safeguard the financial system. Aggregate financing stood at 1.22 trillion yuan ($182.7 billion) in July, the People’s Bank of China said on Tuesday, compared with an estimated 1 trillion yuan in a Bloomberg survey. New yuan loans stood at 825.5 billion yuan, versus an projected 800 billion yuan. Broad M2 money supply increased 9.2%, while economists forecast a 9.5% increase . Authorities pushing to cut excess leverage have squeezed the massive shadow bank sector, which shrank for the first time in nine months. Yet with aggregate financing remaining robust and bond issuance rebounding, the central bank is still providing ample support for businesses to avoid derailing growth ahead of a key Communist Party congress this fall.

Slower M2 growth will become a “new normal,” the PBOC said Friday in its quarterly monetary policy report. “The relevance of M2 growth to the economy and its predictability has reduced, and its changes should not be over-interpreted.” “The deleveraging campaign is still focused on the financial sector, which leads to the slowdown in M2 growth,” said Yao Shaohua at ABCI Securities in Hong Kong. “Bank support for the real economy remains solid.” “The easing in credit conditions in July was probably part of the concerted stability play ahead of the Party Congress, thus more likely to be temporary,” said Yao Wei, chief China economist at Societe Generale in Paris. “We’re still looking for more deleveraging measures and tougher regulations afterwards.”

“The divergence between M2 growth and aggregate financing reflects that the PBOC is trying to balance cutting leverage while ensuring enough funds to support the real economy,” said Wen Bin at China Minsheng Banking in Beijing. “Single-digit M2 growth is likely to stretch until year-end. And with ample support from the central bank’s credit supply, the drag effect of financial deleveraging on the economic expansion will be limited.” “Banks are still creating credit, and this credit is important to support economic growth,” said Iris Pang, an analyst at ING in Hong Kong. “If liquidity is too tight, or credit growth shrinks, the whole deleveraging reform will run into the risk that there will be too many defaults and the whole banking system will be shaken up.”

Read more …

“..first-time buyer registrations drop by almost 20% on the year..”

• UK Risks ‘Losing Its Place As Property-Owning Democracy’

The UK risks losing its place as a property-owning democracy if house prices continue to rise, according to the boss of the UK’s largest independent estate agent. Paul Smith, chief executive of haart, said that “unaffordability is reaching crisis point” and urged the Government to stop “excessive profiteering” at the expense of aspiring home owners. The call comes as official figures showed that the price of the average house in the UK increased by £10,000 last year to £223,000. Property values increased by 0.8% between May and June according to joint figures from the Office for National Statistics, Land Registry and other bodies. In the year to June average prices were up 4.9%, down marginally from 5% growth in the year to May.

The report released on Tuesday said the annual growth rate had slowed since mid-2016 but has remained steady at about 5% this year so far. “House prices continued to rally with unflinching determination once again in June despite the ongoing economic uncertainty,” Mr Smith said. “However this means that the average UK buyer now has to fork out an extra £10,000 more to own a home than the same time last year. “Along with consumer price hikes and falling wage growth, unaffordability is reaching a crisis point. This is creating real impact on the ground as we see first-time buyer registrations drop by almost 20% on the year across our branches.”

Read more …

“..if you’re lucky enough to not be living in your parents’ basement, you’ll be relegated to renting your house from Blackstone.”

• The New American Dream: Rent Your Home From A Hedge Fund (Black)

About a month ago I joined the Board of Directors of a publicly-traded company that invests in US real estate. The position brings a lot of insight into what’s happening in the US housing market. And from what I’m seeing, the transformation that’s taking place today is extraordinary. Buying and renting out single-family homes has long been the mainstay investment of small, independent, individual investors. The big banks and hedge funds pretty much monopolize everything else. They own the stock market. They own the bond market. They own all the commercial real estate. They even own the farmland. Single-family homes were one of the last bastions of investment freedom for the little guy. (Real estate is how I got my own start in business and investing so many years ago; I was a 21-year-old Army lieutenant fresh out of the academy when I bought my first rental property.)

But all that’s changing now. Last week a huge merger was announced between Invitation Homes (owned by private equity giant Blackstone Group) and Starwood Waypoint Homes (owned by real estate giant Starwood Capital). If the deal goes through, the combined entity would be the largest owner of single-family homes in the United States with a portfolio worth over $20 billion. And this is only the latest merger in an ongoing trend. Three years ago, for example, American Homes 4 Rent bought Beazer Pre-Owned Rental Homes, creating another enormous player. A few months later, Starwood Waypoint bought Colony American Homes. And of course, Blackstone was one of the first institutional investors to start buying distressed homes, forking over around $10 billion on houses since the Great Financial Crisis.

[..] medium-sized funds are buying up all the little guys. And mega-funds like Blackstone are buying up all the medium-sized funds. This means there’s essentially an ‘arms race’ building among the world’s biggest funds to control the market, squeezing small, individual investors out of the housing market. [..] the average guy isn’t making any more money, or able to save anything… all while home prices soar to record levels as major funds gobble up the supply. This means that the new reality in America, especially for young people, is that if you’re lucky enough to not be living in your parents’ basement, you’ll be relegated to renting your house from Blackstone.

Read more …

Prolonging the emergency with America’s own bridges to nowhere.

• Trump Signs Order to Speed Up Public-Works Permits (BBG)

President Donald Trump signed an executive order Tuesday that’s designed to streamline the approval process for building roads, bridges and other infrastructure by establishing “one federal decision’’ for major projects and setting an average two-year goal for permitting. “This over-regulated permitting process is a massive self-inflicted wound on our country,” Trump said in a press conference at Trump Tower in New York. “It’s disgraceful.” Among other things, the president’s order will rescind a previous decree signed by former President Barack Obama that required federal agencies to account for flood risk and climate change when paying for roads, bridges or other structures.

It also allows the Office of Management and Budget to establish goals for environmental reviews and permitting of infrastructure projects and then track their progress – with automatic elevation to senior agency officials when deadlines are missed or extended, according to the order. The order calls for tracking the time and costs of conducting environmental reviews and making permitting decisions, and it allows the budget office to consider penalties for agencies that fail to meet established milestones. Critics say there’s danger in streamlining the reviews. “This is yet another outrageous example of Trump’s insistence on putting corporate interests ahead of people’s health and safety,” said Alex Taurel, deputy legislative director with the League of Conservation Voters, a political advocacy group.

Read more …

Way too late.

• German Challenge To ECB QE Asset Buys Sent To European Court (R.)

The European Central Bank may be violating laws on monetary financing in its €2.3 trillion ($2.7 trillion) asset purchase programme, Germany’s constitutional court said on Tuesday, and it asked Europe’s top court to make a ruling. In the biggest challenge yet to the ECB’s unprecedented effort to revive growth, the court said bond buys under the scheme may go beyond the bank’s mandate and inhibit euro zone members’ activities. “Significant reasons indicate that the ECB decisions governing the asset purchase programme violate the prohibition of monetary financing and exceed the monetary policy mandate of the European Central Bank, thus encroaching upon the competences of the Member States,” the court said. It said it would ask the European Court of Justice to review the programme.

The ECB acted swiftly to defend the scheme. “The extended asset purchase programme is in our opinion fully within our mandate,” it said in a statement. “That is ultimately for the European Court of Justice to assess.” It said the €60 billion per month asset buys would continue as normal. The European court has already backed the ECB’s more contentious emergency bond purchase scheme known as Outright Monetary Transactions or OMT with only relatively minor limitations, suggesting that the challenge – lodged by several academics and politicians – may face an uphill battle. The decision to pass the issue over to the ECJ means any final ruling will come either after the bond purchases end or near the end of the scheme, which has already been running for over two years and is expected to be wound down next year.

Read more …

“The same State Department Official had written of Gadaffi in Libya that combining its oil wealth with public ownership of the economy “enabled Libyans to live beyond the wildest dreams of their fathers, and grandfathers.”

• Washington’s Long War on Syria (Ren.)

From Syria, to Iraq, Iran to Libya, our understandings of the long-wars in the Middle-East as moral, humanitarian interventions designed to democratise and civilise are the result of a carefully crafted propaganda campaign waged by the US and its allies. Each of these uprisings were launched by US proxies, designed to destabilize the regions, justifying regime change that suit the economic interests of its investors, banks and corporations, captured comprehensively in a new book by Canadian author and analyst, Stephen Gowans, Washington’s Long War on Syria. You might be surprised to know that both the Libyan, Syrian and Iraqi government, led by Muammar Gaddafi, Hafez Al Assad, (succeeded by Bashaar Al Assaad) and Sadaam Hussein respectively, were socialist governments. Or Ba’ath Arab Socialist governments, to be precise.

Ba’ath Arab Socialism can be summed up in their constitutions supporting the values of: ‘freedom of the Arab world, freedom from foreign powers and freedom of socialism’. Its doctrine was supported in Libya, as it was in Iraq and Syria. Of course, particularly in Hussein’s case, we cannot claim that these governments were without their problems. Ethnic cleansing is not to be overlooked, but condemned on the strongest grounds. But of course these were not the reasons the US and its allies decided to get into it. In the case of Iraq, it had combined its oil wealth with public ownership of the economy, leading to what is known as ‘The Golden Age’, where, according to a State Department Official: “Schools, universities, hospitals, factories, museums and theatres proliferated employment so universal, a labour shortage developed.”

When the Ba’ath Arab Socialists were driven from power in Iraq, the US installed military dictator, Paul El Briener who set about a ‘de-Ba’athification’ of the government, expelling every member of the Ba’ath Arab Socialist party and imposed a constitution forbidding any secular Arab leader from ever holding office in Iraq again. The same State Department Official had written of Gadaffi in Libya that combining its oil wealth with public ownership of the economy “enabled Libyans to live beyond the wildest dreams of their fathers, and grandfathers.” Gadaffi would soon be removed by Islamists, backed by NATO forces after Western oil companies agitated for his removal because he was “driving a hard bargain”. Canadian paramilitary forces even quipped that they were “al-Qaeda’s air-force”.

Read more …

And then we eat it. Carbon will kill us yet.

• Fish Confusing Plastic Debris In Ocean For Food (G.)

Fish may be actively seeking out plastic debris in the oceans as the tiny pieces appear to smell similar to their natural prey, new research suggests. The fish confuse plastic for an edible substance because microplastics in the oceans pick up a covering of biological material, such as algae, that mimics the smell of food, according to the study published on Wednesday in the journal Proceedings of the Royal Society B. Scientists presented schools of wild-caught anchovies with plastic debris taken from the oceans, and with clean pieces of plastic that had never been in the ocean. The anchovies responded to the odours of the ocean debris in the same way as they do to the odours of the food they seek. The scientists said this was the first behavioural evidence that the chemical signature of plastic debris was attractive to a marine organism, and reinforces other work suggesting the odour could be significant.

The finding demonstrates an additional danger of plastic in the oceans, as it suggests that fish are not just ingesting the tiny pieces by accident, but actively seeking them out. Matthew Savoca, of the National Oceanic and Atmospheric Administration and lead author of the study, told the Guardian: “When plastic floats at sea its surface gets colonised by algae within days or weeks, a process known as biofouling. Previous research has shown that this algae produces and emits DMS, an algal based compound that certain marine animals use to find food. [The research shows] plastic may be more deceptive to fish than previously thought. If plastic both looks and smells like food, it is more difficult for animals like fish to distinguish it as not food.”

Read more …

Debt Rattle August 8 2017

Aug 082017
 
 August 8, 2017  Posted by at 9:06 am Finance Tagged with: , , , , , , , , , , ,  Comments Off on Debt Rattle August 8 2017


Vincent van Gogh Tree Roots 1890 (painted July 28, the day before he died)

 

• That Whoosh You Heard? It’s The Great Chinese Property Pullback (BBG)
• Has China’s Rise Topped Out? (BBG)
• Credit Card Debt; Student, Auto Loans All Set New Record Highs (ZH)
• Asking Prices Slashed At High End of the House Price Bubble (WS)
• Is Trump Winning? (Robert Gore)
• Jeff Sessions Endorses Theft (Ron Paul)
• Just Wait a Little While (Jim Kunstler)
• Fossil Fuel Subsidies Are A Staggering $5 Trillion Per Year (G.)
• Bernie Sanders Tells Big Pharma: Stop Making Americans Pay Twice
• Call For ‘Military Schengen’ To Get NATO Troops Moving (Pol.)
• Erdogan Says Turkey To Tackle – US-Supported – Kurds In Syria (R.)
• Greece Accepts Resettlement of Refugees from Germany (GR)

 

 

China needs foreign reserves. It needs to stop bleeding them.

• That Whoosh You Heard? It’s The Great Chinese Property Pullback (BBG)

That whoosh you just heard? It’s Chinese money pulling back from property in London to Sydney to New York. Capital centres globally should brace for tumbling real-estate prices as Beijing manages to do what Brexit and higher interest rates haven’t. Reflecting tighter regulations, China overseas direct property investment could drop 84% to $US1.7 billion ($2.15 billion) this year and about another 15% to $US1.4 billion in 2018, according to Morgan Stanley. Mainland money began piling into offshore commercial property in 2013. Land prices were expensive at home, and investors wanted to find a hedge against a weakening yuan. Another draw was the prospect of higher returns in cities such as Sydney where yield spreads – the difference between rental yields and what government bonds pay – are higher.

A slumping British pound post June 2016’s Brexit vote helped, too. While some marquee transactions are still being inked – think the purchase earlier this year of London’s “Cheesegrater” tower by Chongqing-based, Hong Kong-listed CC Land Holdings – their numbers are dwindling. A strengthening yuan, along with China’s One Belt One Road initiative that needs funding, will see many property deals dry up. Over the past few months, Beijing has made it tougher to get money out, clamped down on more fanciful transactions such as the buying of football clubs and luxury hotels, and is now going after some of the country’s most prolific acquirers. Dalian Wanda Group, Anbang Insurance Group, HNA Group and Fosun International have all included real estate in their global buying binges.

Against that backdrop, and with increasing foreign-government scrutiny thrown into the mix, it’s hard to see how Chinese offshore real estate acquisitions can continue at such a pace. Domestic developers are already finding it harder to tap international debt markets, and have been resorting to short-term securities instead. This matters because Chinese capital accounted for one-quarter of commercial property transactions in central London last year, up from 1% a decade ago. China is now the second-largest foreign investor in the US after Canada, and is responsible for between 12 and 25% of all office transactions by value in Australia over the past two to three years.

Read more …

Again, China needs foreign reserves: “Nowhere is the disconnect between China’s global ambitions and actual policy greater than with the government’s interference in overseas direct investment.”

• Has China’s Rise Topped Out? (BBG)

Most people around the world still seem to believe China’s ascent is relentless and inevitable. A recent survey by the Pew Research Center showed that while more of those polled still see the U.S. as the world’s leading economy, China is quickly narrowing the gap. Chinese President Xi Jinping has been feeding that positive image by presenting his country as a champion of globalization, trade and economic progress. Statistics tell a different story. The common perception is that China is swamping the world with exports of everything from mobile phones to steel to sneakers. In fact, the entire Chinese export machine is sputtering. Between 2006 and 2011, China’s total merchandise exports nearly doubled, powering the country through the Great Recession. Since then, they’ve increased less than 11%, according to World Trade Organization data.

The same trend holds for China’s currency. In late 2014, the renminbi broke into the top five most-used currencies for global payments, reaching an almost 2.2% share. China seemed well on the way to achieving its long-stated goal of turning the yuan into a true rival to the dollar. But that progress has reversed. In June, the renminbi chalked up only a 2% share, according to Swift, slipping behind the Canadian dollar. The situation isn’t very different in China’s capital markets. While the government has cracked open its stock and bond markets to foreign investors, they still prefer buying Chinese shares listed in Hong Kong or New York to those in Shanghai or Shenzhen. For instance, domestically traded A-shares in a China equities fund managed by Zurich-based GAM account for less than 10% of its holdings.

In part, China is simply running into the difficult transition every country faces when losing its low-cost advantage. Facing stiff competition from countries like India and Vietnam, where wages are lower, China is losing ground in apparel and textile exports to the United States. Meanwhile, the Chinese economy isn’t replacing these traditional exports with new, high-value ones quickly enough. For example, in 2016, China exported 708,000 passenger and commercial vehicles, a sharp deterioration from the more than 910,000 shipped abroad in 2014. Rather than boosting China’s global expansion, government policy is holding it back. The renminbi remains a sideshow in currency markets because the state can’t stop fussing with its value. In May, the central bank actually reversed its stated policy to liberalize the renminbi’s trading and imposed more control.

[..] Nowhere is the disconnect between China’s global ambitions and actual policy greater than with the government’s interference in overseas direct investment. For a while, officials were encouraging big companies to shop abroad, resulting in a surge of deal-making by firms like Anbang. That led to a debt-crazed buying binge. Having created the problem, the government then stepped in to “fix” it, by suddenly changing course and clamping down on foreign deals. According to the American Enterprise Institute, China’s offshore investment still grew by 9% in the first half of 2017, but only because of one giant deal – state-owned China National Chemical Corp.’s acquisition of Syngenta AG. Take that one out, and overseas investment would have fallen by about a third.

Read more …

Masters and debt slaves.

• Credit Card Debt; Student, Auto Loans All Set New Record Highs (ZH)

Who would have expected that today’s otherwise boring monthly consumer credit report would be the day’s most exciting event. Well, moments ago the monthly update from the Federal Reserve confirmed that as of the end of June, total revolving (i.e. credit card) credit rose to $1,021.7 billion, an increase of $4.1 billion on the month, and a new all time high, taking out the previous record high set during the summer of 2008.

Coupled with the monthly $8.3 billion increase in non-revolving credit, which also rose to an all time high of $2,834.1 billion…

… means that total consumer credit in June increased by $12.4 billion, slightly less than the $13.9 billion expected and modestly less than the $18.4 billion increase in May, to $3,855.8 billion, also a record high.

Taking a closer look at the quarterly update in non-revolving debt, we find that for another consecutive quarter, both student and auto loans hit record highs, of $1.450 trillion and $1.131 trillion respectively, although there does appears to be a modest slowdown in credit issuance for these two largest categories.

Read more …

“Aspirational pricing”: pumping the market.

• Asking Prices Slashed At High End of the House Price Bubble (WS)

No, Cantor Fitzgerald CEO Howard Lutnick didn’t “save” $81 million when he bought the most expensive listing in New York City, the 12,000-square-foot, 16-room triplex penthouse on the 41st, 42nd, and 43rd floors of The Pierre, a co-op tower on Fifth Avenue dating from 1930s. By the way, the owner also pays monthly maintenance charges for the apartment of $51,840). Asking price was $125 million when it was first listed in March 2013. In December that year, the price was slashed to $95 million. In 2015, it was cut to $63 million. That’s half of the original asking price. But it still didn’t sell. So it was taken off the market. After it underwent a modern redesign, it was re-listed in April 2016 for $57 million. It still didn’t sell. But on August 2, Page Six reported that Lutnick bought it for $44 million. At 65% below asking.

“Cantor Fitzgerald CEO buys iconic triplex at $81M discount,” said the Page Six headline. “Best Real Estate Headline Ever,” said Jonathan Miller, real-estate appraiser and author of the Elliman Report series, in his Housing Notes. Miller has a word for this phenomenon of enormous blue-sky asking prices that trigger subsequent massive and serial price reductions until finally someone bites: “Aspirational pricing.” “The very idea that a home seller would discount their home by $81 million to make the sale is an insane thought. This speaks to the concept I call “aspirational pricing.” The asking price was set to a price so ridiculous that it would literally sit on the market for years and the market would unlikely catch up in a lifetime. More importantly, it serves as misdirection for other high-end properties coming to the market by influencing them to also wildly over price as well.”

The 6,800-square-foot fully furnished penthouse occupying the top floor of the beachfront condo tower at 321 Ocean in South Beach, Miami Beach, was listed for sale in December 2015 for $53 million. The sellers had bought it when the building was completed six months earlier, for $20 million. “Financier Aims for Ambitious $53 Million Miami Penthouse Flip,” The Wall Street Journal said at the time. The hopeful flippers are Boris Jordan and Elizabeth Jordan: Founder of the private-equity and advisory firm the Sputnik Group, Mr. Jordan previously served as chief executive of the state-controlled Russian media conglomerate Gazprom-Media, and as head of the Russian television network NTV. But the hot air has come out of the condo market in Miami Beach. In the second quarter, after years of soaring, the median sale price for non-distressed condos dropped 7.5%, and the average price plunged 15.2%, according to the Elliman Report.

Read more …

A different look.

• Is Trump Winning? (Robert Gore)

We’ve asserted that President Trump is far smarter and the powers that be far stupider and weaker than current consensus estimates. Trump’s primary motivation is power. The nonstop vilification campaign against him has little to do with policy differences and instead reflects establishment fears that Trump will investigate, expose, and punish its criminality. The upshot of these hypotheses: Trump is winning and has consolidated his power. [..] Even the Washington Post has admitted the Russia probe is “crumbling.” Trump and Sessions know Special Prosecutor Robert Mueller won’t find much because there’s nothing there, although there may be a sacrificial offering or two to propitiate the investigatory gods.

Trump read Sessions the riot act via Twitter and a Wall Street Journal interview about not investigating Hillary Clinton, intelligence community leaks to the press, and Ukrainian efforts to sabotage his presidential campaign. He’s been roundly condemned for publicly criticizing Sessions, but here’s a speculative leap: perhaps publicly criticizing Sessions was not really what Trump was doing. Perhaps Trump was giving his attorney general political cover to pursue investigations against high-profile Democrats who cannot help Trump, sub rosa or otherwise. Investigations of Hillary Clinton, former Attorney General Loretta Lynch, Susan Rice, Samantha Power, Fusion GPS, and Debbie Wasserman Schultz would demoralize the Democrats, preoccupy and harass key players, expose criminality, and electrify Trump’s base.

Providing Sessions further cover, twenty Republican representatives have sent a letter to the Attorney General and Deputy Attorney General Rod Rosenstein demanding the appointment of a second Special Counsel to look into potentially illegal acts by Clinton, Lynch, and former FBI director James Comey. After recusing himself from the Russiagate investigation, which he knows is pointless, and being “scolded” by Trump, Sessions is now a sympathetic, squeaky-clean figure; even Democrats have expressed support. He has far more latitude to pursue the investigations his boss wants him to pursue. Most of the ensuing criticism will be directed at Trump, which will bother Trump not at all (although there will undoubtedly be answering Twitter blasts).

Trump has quietly (when Trump does anything quietly, take note) made two sea changes in US policy in Syria. At the G20 summit, he negotiated a cease fire with Vladimir Putin for southwest Syria. Last week he ended a CIA program that armed Syrian jihadists fighting Bashar al-Assad’s regime. Both changes are anathema to the US Deep State, the mainstream media, and US allies Saudi Arabia, the Gulf States, Israel, and Turkey, yet other than “rote denunciation,” they have been surprisingly docile. The latter change could presage abandonment of a pillar of US foreign and military policy since President Carter supplied arms and other aid to the mujahideen in Afghanistan during their successful fight against the Soviet Union. The US may be out of the business of arming Islamic insurgents against regimes it seeks to change.

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Another look, different from the last one.

• Jeff Sessions Endorses Theft (Ron Paul)

Attorney General Jeff Sessions recently ordered the Justice Department to increase the use of civil asset forfeiture, thus once again endorsing an unconstitutional, authoritarian, and increasingly unpopular policy. Civil asset forfeiture, which should be called civil asset theft, is the practice of seizing property believed to be involved in a crime. The government keeps the property even if it never convicts, or even charges, the owner of the property. Police can even use civil asset theft to steal from people whose property was used in criminal activity without the owners’ knowledge. Some have even lost their homes because a renter or houseguest was dealing drugs on the premises behind the owners’ backs. Civil asset theft is a multi-billion dollar a year moneymaker for all levels of government.

Police and prosecutors receive more than their “fair share” of the loot. According to a 2016 study by the Institute for Justice, 43 states allow police and prosecutors to keep at least half of the loot they got from civil asset theft. Obviously, this gives police an incentive to aggressively use civil asset theft, even against those who are not even tangentially involved in a crime. For example, police in Tenaha, Texas literally engaged in highway robbery — seizing cash and other items from innocent motorists — while police in Detroit once seized every car in an art institute’s parking lot. The official justification for that seizure was that the cars belonged to attendees at an event for which the institute had failed to get a liquor license. The Tenaha police are not the only ones targeting those carrying large sums of cash.

Anyone traveling with “too much” cash runs the risk of having it stolen by a police officer, since carrying large amounts of cash is treated as evidence of involvement in criminal activity. Civil asset theft also provides an easy way for the IRS to squeeze more money from the American taxpayer. As the growing federal debt increases the pressure to increase tax collections without raising tax rates, the IRS will likely ramp up its use of civil asset forfeiture. Growing opposition to the legalized theft called civil asset forfeiture has led 24 states to pass laws limiting its use. Sadly, but not surprisingly, Attorney General Jeff Sessions is out of step with this growing consensus. After all, Sessions is a cheerleader for the drug war, and civil asset theft came into common usage as a tool in the drug war. President Trump could do the American people a favor by naming a new attorney general who opposes police state policies like the drug war and police state tactics like civil asset theft.

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“We’ll use every kind of duct tape and baling wire we can find to keep the current systems operating, and we have..”

• Just Wait a Little While (Jim Kunstler)

The authorities in this nation, including government, business, and academia, routinely lie about our national financial operations for a couple of reasons. One is that they know the situation is hopeless but the consequences are so awful to contemplate that resorting to accounting fraud and pretense is preferable to facing reality. Secondarily, they do it to protect their jobs and reputations — which they will lose anyway as collapse proceeds and their record of feckless dishonesty reveals itself naturally.

The underlying issue is the scale of human activity in our time. It has exceeded its limits and we have to tune back a lot of what we do. Anything organized at the giant scale is headed for failure, so it comes down to a choice between outright collapse or severe re-scaling, which you might think of as managed contraction. That goes for government programs, military adventures, corporate enterprise, education, transportation, health care, agriculture, urban design, basically everything.

There is an unfortunate human inclination to not reform, revise, or re-scale familiar activities. We’ll use every kind of duct tape and baling wire we can find to keep the current systems operating, and we have, but we’re close to the point where that sort of cob-job maintenance won’t work anymore, especially where money is concerned. Why this is so has been attributed to intrinsic human brain programming that supposedly evolved optimally for short-term planning. But obviously many people and institutions dedicate themselves to long-term thinking. So there must be a big emotional over-ride represented by the fear of letting go of what used to work that tends to disable long-term thinking.

It’s hard to accept that our set-up is about to stop working — especially something as marvelous as techno-industrial society. But that’s exactly what’s happening. If you want a chance at keeping on keeping on, you’ll have to get with reality’s program. Start by choosing a place to live that has some prospect of remaining civilized. This probably doesn’t include our big cities. But there are plenty of small cities and small towns out in America that are scaled for the resource realities of the future, waiting to be reinhabited and reactivated. A lot of these lie along the country’s inland waterways — the Ohio, Mississippi, Missouri river system, the Great Lakes, the Hudson and St. Lawrence corridors — and they also exist in regions of the country were food can be grown.

You’ll have to shift your energies into a trade or vocation that makes you useful to other people. This probably precludes jobs like developing phone apps, day-trading, and teaching gender studies. Think: carpentry, blacksmithing, basic medicine, mule-breeding, simplified small retail, and especially farming, along with the value-added activities entailed in farm production. The entire digital economy is going to fade away like a drug-induced hallucination, so beware the current narcissistic blandishments of computer technology. Keep in mind that being in this world actually entitles you to nothing. One way or another, you’ll have to earn everything worth having, including self-respect and your next meal. Now, just wait a little while.

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Political power.

• Fossil Fuel Subsidies Are A Staggering $5 Trillion Per Year (G.)

Fossil fuels have two major problems that paint a dim picture for their future energy dominance. These problems are inter-related but still should be discussed separately. First, they cause climate change. We know that, we’ve known it for decades, and we know that continued use of fossil fuels will cause enormous worldwide economic and social consequences. Second, fossil fuels are expensive. Much of their costs are hidden, however, as subsidies. If people knew how large their subsidies were, there would be a backlash against them from so-called financial conservatives. A study was just published in the journal World Development that quantifies the amount of subsidies directed toward fossil fuels globally, and the results are shocking. The authors work at the IMF and are well-skilled to quantify the subsidies discussed in the paper.

Let’s give the final numbers and then back up to dig into the details. The subsidies were $4.9 tn in 2013 and they rose to $5.3 tn just two years later. According to the authors, these subsidies are important because first, they promote fossil fuel use which damages the environment. Second, these are fiscally costly. Third, the subsidies discourage investments in energy efficiency and renewable energy that compete with the subsidized fossil fuels. Finally, subsidies are very inefficient means to support low-income households. With these truths made plain, why haven’t subsidies been eliminated? The answer to that is a bit complicated. Part of the answer to this question is that people do not fully appreciate the costs of fossil fuels to the rest of us. Often we think of them as all gain with no pain.

So what is a subsidy anyway? Well, that too isn’t black and white. Typically, people on the street think of a subsidy as a direct financial cost that result in consumers paying a price that is below the opportunity cost of the product (fossil fuel in this case). However, as pointed out by the authors, a more correct view of the costs would encompass: “..not only supply costs but also (most importantly) environmental costs like global warming and deaths from air pollution and taxes applied to consumer goods in general.” The authors argue, persuasively, that this broader view of subsidies is the correct view because they “reflect the gap between consumer prices and economically efficient prices.”

Without getting too deep into the weeds, the authors discuss both consumer subsidies (when the price paid by a consumer is below a benchmark price) and producer subsidies (when producers receive direct or indirect support which increases their profitability). The authors then quantify what benefits would be achieved if the fossil fuel subsidies were reformed. Interested readers are directed to the paper for further details, but the results are what surprised me. Pre-tax (the narrow view of subsidies) subsidies amount to 0.7% of global GDP in 2011 and 2013. But the more appropriate definition of subsidies is much larger (8 times larger than the pre-tax subsidies). We are talking enormous values of 5.8% of global GDP in 2011, rising to 6.5% in 2013.

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Just how simple it really is. If you can’t stop this, forget about it.

• Bernie Sanders Tells Big Pharma: Stop Making Americans Pay Twice

While both political parties have denounced the rising cost of prescription drugs, neither Democrats nor Republicans have done much to address the problem. But this summer, a new tool to restrict the rising prices of drugs developed with taxpayer dollars has been introduced by the two U.S. senators who don’t belong to either party. The mechanism works like this: Drug manufacturers who take federal money to develop drugs must keep their U.S. prices in line with the prices they charge in other economically advanced nations — typically much lower than drug prices in the U.S. The system would prevent pharmaceutical companies from effectively double-charging U.S. consumers by using their tax money for research and then charging them some of the steepest prices in the world at the pharmacy.

Pharmaceutical companies, who pour millions of dollars into both the Democratic and Republican parties, are against the idea, which is perhaps why the fix is being pushed by Bernie Sanders of Vermont and Angus King of Maine, the only independents in congress. The U.S. has the highest level of per capita pharmaceutical spending of any nation on Earth, according to the OECD. And while Americans spend more than any other country to buy their drugs, they also spend more than any other country to develop those same drugs. In June, King successfully added an amendment to the 2018 military spending bill (still working its way through congress) that would allow the Department of Defense to take away exclusive patents from drug companies that benefitted from DoD funding if their drug price in the U.S. rises above the median price in seven foreign countries with similar economies.

Then last week, Sanders introduced legislation that would tie the prices of drugs made with government funding to costs in other countries. Unlike King’s amendment, Sanders’ bill would expand the concept beyond the DoD. The bill requires companies taking federal funds to develop drugs to enter into “reasonable pricing” agreements with the Secretary of Health and Human Services. “Under this insane system, Americans pay twice. First we pay to create these lifesaving drugs, then we pay high prices to buy those drugs,” wrote Sanders in a New York Times op-ed. “Our government must stop being pushovers for the pharmaceutical industry and its 1,400 lobbyists.”

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Soon to come: US soldiers parading in your streets. Will German and Estonian batallions appear in Kansas and Texas as well?

• Call For ‘Military Schengen’ To Get NATO Troops Moving (Pol.)

European leaders have made a priority of greater military cooperation, yet the ability of NATO forces to operate in Europe is still hindered by border restrictions and mismatched infrastructure, according to uniformed commanders and EU defense ministers. While NATO has made substantial progress in surmounting legal hurdles to cross-border operations, lingering bureaucratic requirements — such as passport checks at some border crossings and infrastructure problems, like roads and bridges that can’t accommodate large military vehicles — could slow or even cripple any allied response to an emerging threat, officials warned. To lift the roadblocks, and speed coordinated military action, the Dutch defense minister, Jeanine Hennis-Plasschaert, called on EU officials to create a so-called military Schengen zone.

The idea, loosely modeled on the open-border travel zone that has covered most of Europe since 1996, has also been a long-time goal of the senior United States Army commander in Europe, Lieutenant General Ben Hodges. “We must be able to move quickly to any place where there is a threat,” Hennis-Plasschaert said in a statement announcing her proposal at a meeting of NATO defense ministers in June. NATO leaders insist they have addressed the most problematic obstacles to cross-border operations, but nonetheless welcomed the Dutch proposal as a way to raise political pressure and create a sense of urgency around further improving the “interoperability” of allied countries. Officials say the obstacles are only apparent during peacetime exercises and planning, and that during a real military emergency, NATO’s supreme allied commander for Europe — based in Mons, Belgium — would simply warn allies and deploy as needed.

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“Turkey, which has the second largest army in NATO after the United States..”

• Erdogan Says Turkey To Tackle – US-Supported – Kurds In Syria (R.)

Days after a reshuffle of Turkey’s top military commanders, President Tayyip Erdogan has revived warnings of military action against Kurdish fighters in Syria that could set back the U.S.-led battle against Islamic State. Kurdish militia are spearheading an assault against the hardline militants in their Syrian stronghold Raqqa, from where Islamic State has planned attacks around the world for the past three years. But U.S. backing for the Kurdish YPG fighters in Syria has infuriated Turkey, which views their growing battlefield strength as a security threat due to a decades-old insurgency by the Kurdish PKK within in its borders. There have been regular exchanges of rocket and artillery fire in recent weeks between Turkish forces and YPG fighters who control part of Syria’s northwestern border.

Turkey, which has the second largest army in NATO after the United States, reinforced that section of the border at the weekend with artillery and tanks and Erdogan said Turkey was ready to take action. “We will not leave the separatist organization in peace in both Iraq and Syria,” Erdogan said in a speech on Saturday in the eastern town of Malatya, referring to the YPG in Syria and PKK bases in Iraq. “We know that if we do not drain the swamp, we cannot get rid of flies.” The YPG denies Turkish allegations of links with Kurdish militants inside Turkey, saying it is only interested in self-rule in Syria and warning that any Turkish assault will draw its fighters away from the battle against Islamic State which they are waging in an alliance with local Arab forces.

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Bend over. We have something for you.

• Greece Accepts Resettlement of Refugees from Germany (GR)

For the first time since 2011, Germany will again begin the resettlement of refugees to Greece under the EU Dublin Regulation. Migration Policy Minister Yiannis Mouzalas confirmed on German television that Greece will accept refugees who are currently in Germany and whose first entry into the EU was from Greece. The regulation applies to all refugees entering the EU since March 2017. The Dublin Regulation determines the EU Member State responsible to examine an application for asylum seekers seeking international protection. Usually, the responsible Member State will be the state through which the asylum seeker first entered the EU.

In an interview with the German TV to be aired on Monday evening, Mouzalas says: “A few days ago, we approved a small number of refugee returns related to the Dublin Regulation, by Germany and some other EU member states. Greek asylum authorities have undertaken the implementation of the procedure. “There was pressure from EU countries to start accepting resettlements. I understand that governments want to convince their citizens that they are doing something [about the refugee crisis]. That’s why I want to help them.” Deutsche Welle reports that according to the German Ministry of Interior, up to July 31, a total of 392 applications for resettlement were filed with the Greek authorities. The German ministry adds that “the specific dates for their return to Greece depends on the Greek authorities.”

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Debt Rattle August 4 2017

Aug 042017
 
 August 4, 2017  Posted by at 8:34 am Finance Tagged with: , , , , , , , , ,  2 Responses »


Acropolis and Temple of Jupiter Olympus Athens 1862

 

• Australia Slams the Brakes on Property Investment (BBG)
• Toronto Home Prices Suffer Worst Monthly Decline in 17 Years (BBG)
• Toronto Housing Market Implodes: Prices Plunge Most On Record (ZH)
• Euro Junk Bonds and “Reverse Yankees” Go Nuts (WS)
• Global Inflation Hits Lowest Level Since 2009 (WSJ)
• Japan Buries Our Most-Cherished Economic Ideas (BBG)
• Britain’s Finance Sector Will Double In Size In 25 Years – Mark Carney (G.)
• London’s “Land Banking” Ventures Expose Startling Wealth Inequality (O.)
• Russian Ban On Turkish Tomatoes Bears Domestic Fruit (R.)
• Trump Will Now Become the War President (Paul Craig Roberts)
• IMF Admits Disastrous Love Affair With Euro and Immolation Of Greece (Tel)
• Why Have No IMF Officials Been Prosecuted For Malpractice In Greece? (Bilbo)

 

 

It’s just words. The illusion of well-managed control. When property goes down, and it must at some point, it will take the entire Australia economy down with it.

• Australia Slams the Brakes on Property Investment (BBG)

One of the key engines of Australia’s five-year housing boom is losing steam. Property investors, who have helped stoke soaring home prices in Australia, are being squeezed as regulators impose restrictions to rein in lending. The nation’s biggest banks have this year raised minimum deposits, tightened eligibility requirements and increased rates on interest-only mortgages – a form of financing favored by people buying homes to rent out or hold as an investment. Australia’s generous tax breaks for landlords, combined with record-low borrowing costs, have made the nation home to more than 2 million property investors. Demand from those buyers has contributed to a bull run that has catapulted Sydney and Melbourne into the ranks of the world’s priciest property markets. Now, signs are emerging that the curbs are starting to deter speculators – and home prices are finally starting to cool. [..]

The biggest banks have hiked rates on interest-only mortgages by an average of 55 basis points this year, according to Citigroup [..] ..property auction clearance rates in Sydney have held below 70% in seven of the past eight weeks, compared to as high as 81% in March before the curbs were imposed. And investor loans accounted for 37% of new mortgages in May, down from this year’s peak of 41% in January. That’s helping take the heat out of property prices, particularly in Sydney, the world’s second-most expensive housing market. Price growth in the city slowed to 2.2% in the three months through July, down from a peak of 5% earlier this year, CoreLogic said Tuesday. In Melbourne, rolling quarterly price growth has eased to 4.2%. “There have been some signs that conditions in the Sydney and Melbourne markets have eased a little of late,” the Reserve Bank of Australia said on Friday.

Now, with costs increasing, and price growth slowing, property may lose some of its luster as an investment asset. [That] changes “reduce investors’ ability to pay, and means they have to pay owner-occupier values rather than investor values,” said Angie Zigomanis, senior manager, residential property, at BIS Oxford Economics in Melbourne. The restrictions will take “some of the bubble and froth” out of the market, he said, forecasting median Sydney house prices will decline 5% by the end of mid-2019 as investors retreat.

[..] banks may need to get even tougher on lending standards in order to meet the regulator’s order to restrict interest-only loans to 30% of new residential loans by September. Interest-only loans are seen as more risky because borrowers aren’t paying down any principal and may look to sell en-masse if property prices decline.

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Bubble? Nah…

• Toronto Home Prices Suffer Worst Monthly Decline in 17 Years (BBG)

The benchmark Toronto property price, which tracks a typical home over time, dropped 4.6% to C$773,000 ($613,000) from June. That’s the biggest monthly drop since records for the price index began in 2000, according to Bloomberg calculations, and brings prices down to roughly March levels. Prices are still up 18% from the same month a year ago, according to the Toronto Real Estate Board. Transactions tumbled 40% to 5,921, the biggest year-over-year decline since 2009, led by detached homes. The average price, which includes all property types, rose 5% to C$746,218 from July 2016. That compares with a 17% increase at this time last year.

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“..transactions tumbled 40.4%..”

• Toronto Housing Market Implodes: Prices Plunge Most On Record (ZH)

Until mid 2017, it appeared that nothing could stop the Toronto home price juggernaut:

And yet, In early May we wrote that “The Toronto Housing Market Is About To Collapse”, when we showed the flood of new home listings that had hit the market the market, coupled with an extreme lack of affordability, which as we said “means homes will be unattainable to all but the oligarchs seeking safe-haven for their ‘hard’-hidden gains, prices will have to adjust rather rapidly.”

Exactly three months later we were proven right, because less than a year after Vancouver’s housing market disintegrated – if only briefly after the province of British Columbia instituted a 15% foreign buyer tax spooking the hordes of Chinese bidders who promptly returned after a several month hiatus sending prices to new all time highs – just a few months later it’s now Toronto’s turn. On Thursday, the Toronto Real Estate Board reported that July home prices in Canada’s largest city suffered their biggest monthly drop on record amid government efforts to cool the market and the near-collapse of Home Capital Group spooked speculators. The benchmark Toronto property price, while higher 18% Y/Y, plunged 4.6% to C$773,000 ($613,000) from June. That was biggest monthly drop since records for the price index began in 2000, and brought prices down in the metro area to March levels.

More troubling than the price drop, however, was the sudden paralysis in the market as buyers and sellers violently disagreed about fair clearing prices and transactions tumbled 40.4% to 5,921, the biggest year-over-year decline since 2009, led by the detached market segment.

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Wolf Richter with a good example of just how detructive Draghi’s -and other central bankers’- QE really is. The bonds may go nuts, but Draghi IS nuts. Or rather, Europeans are nuts not to stop him.

• Euro Junk Bonds and “Reverse Yankees” Go Nuts (WS)

The ECB’s efforts to buy corporate bonds as part of its stupendous asset buying binge has not only pushed a number of government bond yields below zero, where investors are guaranteed a loss if they hold the bond to maturity, but it has also done a number – perhaps even a bigger one – on the euro junk-bond market. It has totally gone nuts. Or rather the humans and algorithms that make the buying decisions have gone nuts. The average junk bond yield has dropped to an all-time record low of 2.42%. Let that sink in for a moment. This average is based on a basket of below investment-grade corporate bonds denominated in euros. Often enough, the issuers are junk-rated American companies with European subsidiaries – in which case these bonds are called “reverse Yankees.”

These bonds include the riskiest bonds out there. Plenty of them will default, and losses will be painful, and investors – these humans and algos – know this too. This is not a secret. That’s why these bonds are rated below investment grade. But these buyers don’t mind. They’re institutional investors managing other people’s money, and they don’t need to mind. [..] The average yield of these junk bonds never dropped below 5% until October 2013. In the summer of 2012, during the dog days of the debt crisis when Draghi pronounced the magic words that he’d do “whatever it takes,” these bonds yielded about 9%, which might have been about right. Since then, yields have plunged (data by BofA Merrill Lynch Euro High Yield Index Effective Yield via St. Louis Fed). The “on the Way to Zero” in the chart’s title is only partially tongue-in-cheek:

The chart below gives a little more perspective on this miracle of central-bank market manipulation, going back to 2006. It shows the spike in yield to 25% during the US-engineered Financial Crisis and the comparatively mild uptick in yield during the Eurozone-engineered debt crisis:

How does this fit into the overall scheme of things? For example, compared to the US Treasury yield? US Treasury securities are considered the most liquid and the most conservative investments. They’re considered as close to a risk-free financial instrument as you’re going to get on this earth. Turns out, from November 2016 until now, the 10-year US Treasury yield has ranged from 2.14% to 2.62%, comfortably straddling the current average euro junk bond yield of 2.42%.

If you want to earn a yield of about 2.4%, which instrument would you rather have in your portfolio, given that both produce about the same yield, and given that one has a significant chance of defaulting and getting you stuck with a big loss, while the other is considered the safest most boring financial investment out there? The answer would normally be totally obvious, but not in the Draghi’s nutty bailiwick. That this sort of relentless and blind chase for yield – however fun it may be today – will lead to hair-raising losses later is a given. And we already know who will take those losses: The clients of these institutional investors, the beneficiaries of pension funds and life insurance retirement programs, the hapless owners of bond funds, and the like.

In terms of the broader economy: When no one can price risk anymore, when there’s in fact no apparent difference anymore between euro junk bonds and US Treasuries, then all kinds of bad economic decisions are going to be made and capital is going to get misallocated, and it’s going to be Draghi’s royal mess.

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Hint for central bankers: look at money velocity. People don’t spend, they borrow. Keyword: debt.

• Global Inflation Hits Lowest Level Since 2009 (WSJ)

Inflation in the Group of 20 largest economies fell to its lowest level in almost eight years in June, deepening a puzzle confronting central banks as they contemplate removing post-crisis stimulus measures. The OECD said Thursday that consumer prices across the G-20—the countries that accounts for most of the world’s economic activity—were 2% higher than a year earlier. The last time inflation was lower was in October 2009, when it stood at 1.7%, as the world started to emerge from the sharp economic downturn that followed the global financial crisis. The contrast between then and now highlights the mystery facing central bankers in developed economies as they attempt to raise inflation to their targets, which they have persistently undershot in recent years.

According to central bankers, inflation is generated by the gap between the demand for goods and services and the economy’s ability to supply them. As the economy grows and demand strengthens, that output gap should narrow and prices should rise. Right now, the reverse appears to be happening. Across the G-20, economic growth firmed in the final three months of 2016 and stayed at that faster pace in the first three months of 2017. Growth figures for the second quarter are incomplete, but those available for the U.S., the eurozone and China don’t point to a slowdown. Indeed, Capital Economics estimates that on an annualized basis, global economic growth picked up to 3.7% in the three months to June from 3.2% in the first quarter.

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At what point are mainstream economists going to admit they have no clue as to what’s going on? It all sounds like if reality doesn’t fit their models, something must be wrong with reality.

• Japan Buries Our Most-Cherished Economic Ideas (BBG)

Japan is the graveyard of economic theories. The country has had ultralow interest rates and run huge government deficits for decades, with no sign of the inflation that many economists assume would be the natural result. Now, after years of trying almost every trick in the book to reflate the economy, the Bank of Japan is finally bowing to the inevitable. The BOJ’s “dot plot” shows that almost none of the central bank’s nine board members believe that the country will reach its 2% inflation target. Accordingly, the bank has pushed back the date at which it expects to hit its 2% target. That’s a little comical, since by now it should be fairly obvious that the date will only get pushed back again and again. If some outside force intervenes to raise inflation to 2%, the BOJ will declare that it hit the target, but it’s pretty clear it has absolutely no idea how to engineer a deliberate rise in inflation.

The bank will probably keep interest rates at zero indefinitely, but if decades of that policy haven’t produced any inflation, what reason is there to think that decades more will do the trick? Some economists think more fiscal deficits could help raise inflation. That’s consistent with a theory called the “fiscal theory of the price level,” or FTPL. But a quick look at Japan’s recent history should make us skeptical of that theory – even as government debt has steadily climbed, inflation has stumbled along at close to 0%. Japan’s situation should also give pause to economists who want to resurrect the idea of the Phillips Curve, which purports to show a stable relationship between unemployment and inflation. Japan’s persistently low inflation comes even though essentially everyone in Japan who wants a job has one.

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Yeah sure, and then double again the next 25 years.

• Britain’s Finance Sector Will Double In Size In 25 Years – Mark Carney (G.)

The governor of the Bank of England has predicted that the financial sector could double in size to be 20 times as big as GDP within the next 25 years, but warned that the government must hold its nerve and resist pressure to water down regulation after Brexit. Speaking to the Guardian to mark the 10th anniversary of the start of the global financial crisis in August 2007,[..] eant repeating the risky speculation of a decade ago. Carney dismissed suggestions that London could become a financial centre with only light-touch regulation – often dubbed Singapore-on-Thames – in order to attract business after the UK left the EU. He said the size of the financial sector would increase relative to the size of the economy if things went according to plan after Brexit and that meant there could be no going back to the lax regime that existed before 2007.

The Bank, he said, was aware that “we have a financial system that is ten times the size of this economy … It brings many strengths, it brings a million jobs, it pays 11% of tax revenue, it is the biggest export industry by some token … All good things. But it’s risky”. He went on: “We have a view… that post-Brexit the level of regulation will be at least as high as it currently is and that’s a level that in many cases substantially exceeds international norms. “There’s a reason for that, because we’re not going to to go the lowest common denominator in a system that is 10 times size of GDP. If the UK financial system thrives in a post-Brexit world, which is the plan, it will not be 10 times GDP, it will be 15 to 20 times GDP in another quarter of century because we will keep our market share of cross-border capital flows. Well then you really have to hold your nerve and keep the focus.”

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I told you: feudal. UK needs full reset.

• London’s “Land Banking” Ventures Expose Startling Wealth Inequality (O.)

No place is feeling the bite of the UK housing crisis quite as savagely as London. While homelessness, social housing heartbreak and painfully high housing costs reveal the harsh reality of living in Britain’s capital, empty property numbers in London stand at their highest level in 20 years. Who are the culprits? Many would argue it’s the billionaires, whose “land banking” ventures are becoming ever more profitable. At a time when wealthy people purchase property and leave it empty, only to make a huge profit when they sell their investment, ordinary citizens are living in the throes of a 21st century housing crisis that is crippling the capital. Recent government figures show around 1.4 million homes have been lying vacant in the UK for at least six months – the highest level of “spare” homes in two decades.

At the same time, London has witnessed a staggering 456% increase in “land banking” over the last 20 years. Kensington and Chelsea – London’s richest borough, where the Grenfell Tower tragedy took place – has the highest number of empty homes. Land banking in London has long been exploited by the super-rich. In 2014, one-third of the mansions stood empty on Bishops Avenue, a single street in north London that has been dubbed “Billionaires Row,” which ranked as the UK’s second most expensive street with an estimated £350 million worth of empty properties. The famous row of mansions – believed to be owned by members of the Saudi royal family – has stood virtually unused since being bought by investors between 1989 and 1993.

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Putin says he likes globalization, but his country increasingly takes care of itself. The sanctions work to strengthen Russia, the opposite of what America hopes to achieve. Hopefully Russia doesn’t turn tomatoes into some large industrial thing.

• Russian Ban On Turkish Tomatoes Bears Domestic Fruit (R.)

A ban on Turkish tomato imports that was motivated by geopolitics has inspired Russia to become self-sufficient in tomato production, a windfall for companies who invested in the technology that would increase year-round production. Russia has been ramping up production of meats, cheese and vegetables since it banned most Western food imports in 2014 as a retaliatory measure for sanctions meant to punish Russia’s support of rebels in eastern Ukraine and annexation of Crimea. After Turkey shot down a Russian jet near the Syrian border in November 2015, Moscow expanded the ban to include Turkish tomatoes, for which Russia was the biggest export market. Ties between Ankara and Moscow have since largely normalized but the ban remains in place and may not be lifted for another three to five years, officials have said.

That may be too late for Turkish exporters if Russian efforts to ramp up domestic production bear fruit. Greenhouse projects being built with state support are key to Russia’s plans to become self-sufficient for its 144 million population by 2020, industry players, analysts and officials say. Although Russia only imports about 500,000 tonnes of the 3.4 million tonnes of tomatoes consumed annually, the country’s notoriously harsh winters have limited its ability to ramp up to full capacity, IKAR agriculture consultancy said. Currently only 620,000 tonnes of production comes from “protected ground”, or greenhouses, IKAR said. The remainder comes from “open ground” productive only from June to September, and most of that comes from private plots maintained and used by individual families or sold at local farmers’ markets.

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This is what I wrote the other day I fear will happen if Americans don’t stop the demonization of Trump. Really, you should all think again, or you’ll find yourself in a war that nobody can oversee.

• Trump Will Now Become the War President (Paul Craig Roberts)

President Trump has been defeated by the military/security complex and forced into continuing the orchestrated and dangerous tensions with Russia. Trump’s defeat has taught the Russians the lesson I have been trying to teach them for years, and that is that Russia is much more valuable to Washington as an enemy than as a friend. Do we now conclude with Russia’s Prime Minister Dmitry Medvedev that Trump is washed up and “utterly powerless?” I think not. Trump is by nature a leader. He wants to be out front, and that is where his personality will compel him to be. Having been prevented by the military/security complex, both US political parties, the presstitute media, the liberal-progressive-left, and Washington’s European vassals from being out front as a leader for peace, Trump will now be the leader for war. This is the only permissible role that the CIA and armaments industry will permit him to have.

Losing the chance for peace might cost all of us our lives. Now that Russia and China see that Washington is unwilling to share the world stage with them, Russia and China will have to become more confrontational with Washington in order to prevent Washington from marginalizing them. Preparations for war will become central in order to protect the interests of the two countries. The situation is far more dangerous than at any time of the Cold War. The foolish American liberal-progressive-left, wrapped up as they are in Identity Politics and hatred of “the Trump deplorables,” joined the military/security complex’s attack on Trump. So did the whores, who pretend to be a Western media, and Washington’s European vassals, not one of whom had enough intelligence to see that the outcome of the attack on Trump would be an escalation of conflict with Russia, conflict that is not in Europe’s business and security interests.

Washington is already raising the violence threshold. The same lies that Washington told about Saddam Hussein, Gadaffi, Assad, Iran, Serbia and Russia are now being told about Venezuela. The American presstitutes duly report the lies handed to them by the CIA just as Udo Ulfkotte and Seymour Hersh report. These lies comprise the propaganda that conditions Western peoples to accept the coming US coup against the democratic government in Venezuela and its replacement with a Washington-compliant government that will permit the renewal of US corporate exploitation of Venezuela.

As the productive elements of American capitalism fall away, the exploitative elements become its essence. After Venezuela, there will be more South American victims. As reduced tensions with Russia are no longer in prospect, there is no reason for the US to abandon its and Israel’s determination to overthrow the Syrian government and then the Iranian government. The easy wars against Iraq, Libya, and Somalia are to be followed by far more perilous conflict with Iran, Russia, and China This is the outcome of John Brennan’s defeat of President Trump.

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Two pieces on the IMF’s own internal report.

• IMF Admits Disastrous Love Affair With Euro and Immolation Of Greece (Tel)

The IMF’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory. This is the lacerating verdict of the IMF’s top watchdog on the fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions. “Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located” It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking breakdown in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation.

The report by the IMF’s Independent Evaluation Office (IEO) goes above the head of the managing director, Christine Lagarde. It answers solely to the board of executive directors, and those from Asia and Latin America are clearly incensed at the way European Union insiders used the fund to rescue their own rich currency union and banking system. The three main bailouts for Greece, Portugal and Ireland were unprecedented in scale and character. The trio were each allowed to borrow over 2,000pc of their allocated quota – more than three times the normal limit – and accounted for 80pc of all lending by the fund between 2011 and 2014. In an astonishing admission, the report said its own investigators were unable to obtain key records or penetrate the activities of secretive “ad-hoc task forces”. Mrs Lagarde herself is not accused of obstruction.

“Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located. The IEO in some instances has not been able to determine who made certain decisions or what information was available, nor has it been able to assess the relative roles of management and staff,” it said. “The IMF remained upbeat about the soundness of the European banking system… this lapse was largely due to the IMF’s readiness to take the reassurances of national and euro area authorities at face value..” [..] “Before the launch of the euro, the IMF’s public statements tended to emphasise the advantages of the common currency,” it said. Some staff members warned that the design of the euro was fundamentally flawed but they were overruled.

[..] In Greece, the IMF violated its own cardinal rule by signing off on a bailout in 2010 even though it could offer no assurance that the package would bring the country’s debts under control or clear the way for recovery, and many suspected from the start that it was doomed. The organisation got around this by slipping through a radical change in IMF rescue policy, allowing an exemption (since abolished) if there was a risk of systemic contagion. “The board was not consulted or informed,” it said. The directors discovered the bombshell “tucked into the text” of the Greek package, but by then it was a fait accompli.

Read more …

Bill Mitchell read the whole thing.

• Why Have No IMF Officials Been Prosecuted For Malpractice In Greece? (Bilbo)

I have just finished reading the 474-page Background Papers that the IEO released in 2016 and which formed the basis of its June 2016 Evaluation Report – The IMF and the Crises in Greece, Ireland, and Portugal. It is not a pretty story. It seems that the incompetence driven by the blind adherence to Groupthink that the earlier Reports had highlighted went a step further into what I would consider to be criminality plain and simple. The IEO found that IMF officials and economists violated the rules of their own organisation, hid documents, presumably to hide their chicanery and generally displayed a high level of incompetence including failing to under the implications of a common currency – pretty basic errors, in other words. The IEO Report sought to evaluate: “… the IMF’s engagement with the euro area during these crises in order to draw lessons and to enhance transparency..”

The period under review was 2010 to 2013, which covered the “2010 Stand-By Arrangement with Greece, the 2010 Extended Arrangement with Ireland, and the 2011 Extended Arrangement with Portugal.” The IEO noted that the IMF involvement with the Troika was quite different to its normal operations. 1. “the euro area programs were the first instances of direct IMF involvement in adjustment programs for advanced, financially developed, and financially open countries within a currency union”. 2. “they involved intense collaboration with regional partners who also were providing conditional financial assistance, and the modality of collaboration evolved in real time.” 3. “the amounts committed by the IMF … were exceptionally large … exceeded the normal limits of 200% of quota for any 12-month period or 600% cumulatively over the life of the program. In all three countries, access exceeded 2,000% of quota.”

So one would think that the IMF would have exercised especial care and been committed to transparency, given that for the “financial years 2011-14, these countries accounted for nearly 80% of the total lending provided by the IMF”. It didn’t turn out that way. Interestingly, the IEO for all its independence was set upon by “several Executive Directors and other senior IMF officials” at the outset of the evaluation process (when establishing the Terms of Reference), who claimed that the 2012 Bailout was just a “continuation of the 2010 SBA” and so it was not possible to evaluate them separately. In other words, the IMF was trying to close down assessment of its activities.

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Debt Rattle May 15 2017

May 152017
 
 May 15, 2017  Posted by at 8:18 am Finance Tagged with: , , , , , , , , ,  1 Response »


Fred Stein Ballfield NY 1946

 

• Global Property Bubble Is Ready To Pop (MF)
• 3 Cities Push Canada To Another Record On House Prices (HPo)
• Cyber Attack Aftershocks Disrupt Devices Across Asia on Monday (R.)
• Lessons From Last Week’s Cyberattack (Microsoft)
• The World Is Getting Hacked. Why Don’t We Do More to Stop It? (NYT)
• Peak China: Chinese Data Misses Across The Board (ZH)
• Why India Is Cool Towards China’s Belt And Road (SCMP)
• China’s Silk Road Summit: India Skips, Warns Of “Unsustainable Debt” (ZH)
• Number of Chinese Tourists Visiting Greece to Rise 10-Fold (BBG)
• New Zealand Slashes Chinese Tourism Forecast, Denting Outlook (BBG)
• Fed Officials Test New Argument for Tightening: Protect the Poor (BBG)
• Marc Cohodes, The Scourge Of Home Capital, Reveals His Latest Short (ZH)
• Eyes on Euro Fighter Macron (K.)
• Germany Will Not Rush Into Euro Area Fiscal Union (CNBC)
• What Germany Owes Namibia For Genocide (Econ)

 

 

Only real question: will they all fall together like dominoes?

• Global Property Bubble Is Ready To Pop (MF)

Ever since interest rates were slashed to near zero in the wake of the financial crisis, the world has gone property mad. Residential house prices from Abu Dhabi to Zurich have spiralled as hot money travelled the world looking for a home. For those who got in early it has been incredibly rewarding, even if – whisper it – stock markets have actually done far better. The global property bubble cannot blow much bigger. The best we can hope is that it deflates slowly… but it could burst. Property is still going crazy in China, where prices have been pumped up by yet another bout of government stimulus. Guangzhou, close to Hong Kong on the Chinese mainland, leapt a whopping 36% in the past 12 months, according to Knight Frank. Prices rose around 20% in Beijing and Shanghai, as well as in Toronto, Canada.

Seoul in South Korea continues to boom, as does Sydney and Stockholm, both up 10.7% over the last year. Berlin (8.7%), Melbourne (8.6%) and Vancouver (7.9%) are also performing strongly. In most other global cities, property is finally starting to slow. Hong Kong rose a relatively modest 5.3% while Singapore grew 4%, and thereafter price hikes trail away. Half of the 41 countries in the report grew by less than 2%, while nearly one in three saw prices fall, by up to 8.3%. Prime central London was the world’s raciest property market but is now leading the charge in the other direction, falling 6.4%. Former hotspots Zurich, Moscow and Istanbul fell 7% or more over the last 12 months. Cheap money has driven prices ever higher for eight years but is finally losing traction, as affordability is stretched again. Interest rates cannot go any lower and could start rising if the US Federal Reserve continues to tighten. Regulatory authorities are looking to rein in overheated markets, with China only the latest to tighten borrowing requirements. The glory days are over.

Investing in property has one major benefit over stocks and shares – you can leverage up borrowing money to fund your purchase. Thereafter, the advantages are all one way. First, you can trade stocks online within seconds, whereas offloading property can take months (longer in a market crash). You can invest small amounts, rather than the hundreds of thousands of dollars, pounds, euros, yen or renminbi you need to buy a decent property these days. If you buy an investment property you have the effort of doing up and maintaining it, finding tenants, and paying a host of local taxes. You don’t have any of that nonsense with stocks. Best of all, you can invest quickly and easily in a wide spread global stocks, sectors and markets.

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Greater fools and empty bags.

• 3 Cities Push Canada To Another Record On House Prices (HPo)

Home prices in Canada rose for the 15th straight month in a row in April, according to the Teranet-National Bank house price index, which once again hit its highest levels ever. But virtually all the strength seen over the past year came from just three cities — Toronto, Hamilton and Victoria. The index, which tracks repeat sales of single-family homes over time, found Toronto led the way, with the price index rising 2.6% in April. The city has seen prices jump 7.3% since the start of the year, and 26.3% in the past 12 months. Nearby Hamilton, which is experiencing spillover from Toronto’s housing boom, saw its price index rise 2% in April and 23% over the past year. Vancouver, which as recently as a year ago was showing the fastest price growth in the country, is now showing signs of slowing.

The price index fell 0.1% in April, and compared to a year ago, prices are up 9.7%, slower than the national average of 13.4%. Many market experts say Vancouver’s foreign buyer tax has pushed buyers to other cities, including to Victoria, where the price index rose 1.5% in April, and 19% over the past year. “Based on the cooldown in home sales that began early last year, we expect the Vancouver growth rate to fall much lower over the next few months,” wrote David Madani, senior Canada economist at Capital Economics. But Madani expects Toronto to experience a similar cooling. He noted that the city saw a sudden, 30% spike in new home listings in April. That’s “further evidence that the surge in house price inflation is close to a peak and will drop back sharply before the end of this year,” he wrote in a client note.

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So far not so bad. But if the next generation of the attack has no killswitch that can be triggered, anything is possible.

• Cyber Attack Aftershocks Disrupt Devices Across Asia (R.)

Asian governments and businesses reported some disruptions from the WannaCry ransomware worm on Monday but cybersecurity experts warned of a wider impact as more employees turned on their computers and checked e-mails. The ransomware that has locked up hundreds of thousands of computers in more than 150 countries has been mainly spread by e-mail, hitting factories, hospitals, shops and schools worldwide. While the effect on Asian entities appeared to be contained on Monday, industry professionals flagged potential risks as more systems came online across the region. Companies that were hit by the worm may be wary of making it public, they added.

“We’re looking at our victims’ profiles, we’re still seeing a lot of victims in the Asia-Pacific region. But it is a global campaign, it’s not targeted,” said Tim Wellsmore, Director of Threat Intelligence, Asia Pacific at cybersecurity firm FireEye. “But I don’t think we can say it hasn’t impacted this region to the extent it has some other regions.” Michael Gazeley, managing director of Network Box, a Hong Kong-based cybersecurity firm, said there were still “many ‘landmines’ waiting in people’s in-boxes” in the region, with most of the attacks having arrived via e-mail.

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Microsoft blames the NSA, and for good reason, but…

• Lessons From Last Week’s Cyberattack (Microsoft)

[..] this attack provides yet another example of why the stockpiling of vulnerabilities by governments is such a problem. This is an emerging pattern in 2017. We have seen vulnerabilities stored by the CIA show up on WikiLeaks, and now this vulnerability stolen from the NSA has affected customers around the world. Repeatedly, exploits in the hands of governments have leaked into the public domain and caused widespread damage. An equivalent scenario with conventional weapons would be the U.S. military having some of its Tomahawk missiles stolen. And this most recent attack represents a completely unintended but disconcerting link between the two most serious forms of cybersecurity threats in the world today – nation-state action and organized criminal action.

The governments of the world should treat this attack as a wake-up call. They need to take a different approach and adhere in cyberspace to the same rules applied to weapons in the physical world. We need governments to consider the damage to civilians that comes from hoarding these vulnerabilities and the use of these exploits. This is one reason we called in February for a new “Digital Geneva Convention” to govern these issues, including a new requirement for governments to report vulnerabilities to vendors, rather than stockpile, sell, or exploit them. And it’s why we’ve pledged our support for defending every customer everywhere in the face of cyberattacks, regardless of their nationality. This weekend, whether it’s in London, New York, Moscow, Delhi, Sao Paulo, or Beijing, we’re putting this principle into action and working with customers around the world.

We should take from this recent attack a renewed determination for more urgent collective action. We need the tech sector, customers, and governments to work together to protect against cybersecurity attacks. More action is needed, and it’s needed now. In this sense, the WannaCrypt attack is a wake-up call for all of us. We recognize our responsibility to help answer this call, and Microsoft is committed to doing its part.

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…Microsoft itself carries part of the blame as well. It doesn’t support XP, but does ask for a lot of money for patches.

• The World Is Getting Hacked. Why Don’t We Do More to Stop It? (NYT)

The attack was halted by a stroke of luck: the ransomware had a kill switch that a British employee in a cybersecurity firm managed to activate. Shortly after, Microsoft finally released for free the patch that they had been withholding from users that had not signed up for expensive custom support agreements. But the crisis is far from over. This particular vulnerability still lives in unpatched systems, and the next one may not have a convenient kill switch. While it is inevitable that software will have bugs, there are ways to make operating systems much more secure — but that costs real money.

While this particular bug affected both new and old versions of Microsoft’s operating systems, the older ones like XP have more critical vulnerabilities. This is partly because our understanding of how to make secure software has advanced over the years, and partly because of the incentives in the software business. Since most software is sold with an “as is” license, meaning the company is not legally liable for any issues with it even on day one, it has not made much sense to spend the extra money and time required to make software more secure quickly. Indeed, for many years, Facebook’s mantra for its programmers was “move fast and break things.”

[..] If I have painted a bleak picture, it is because things are bleak. Our software evolves by layering new systems on old, and that means we have constructed entire cities upon crumbling swamps. And we live on the fault lines where more earthquakes are inevitable. All the key actors have to work together, and fast. First, companies like Microsoft should discard the idea that they can abandon people using older software. The money they made from these customers hasn’t expired; neither has their responsibility to fix defects. Besides, Microsoft is sitting on a cash hoard estimated at more than $100 billion (the result of how little tax modern corporations pay and how profitable it is to sell a dominant operating system under monopolistic dynamics with no liability for defects).

At a minimum, Microsoft clearly should have provided the critical update in March to all its users, not just those paying extra. Indeed, “pay extra money to us or we will withhold critical security updates” can be seen as its own form of ransomware. In its defense, Microsoft probably could point out that its operating systems have come a long way in security since Windows XP, and it has spent a lot of money updating old software, even above industry norms. However, industry norms are lousy to horrible, and it is reasonable to expect a company with a dominant market position, that made so much money selling software that runs critical infrastructure, to do more.

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tick tick tick.

• Peak China: Chinese Data Misses Across The Board (ZH)

Following months of warnings that China’s economy is slowing down as a result of not only a collapse in China’s credit impulse but also tighter monetary conditions, as well as rolling over loan growth which has pressured both CPI and PPI – i.e., the global “reflation trade” – as the following chart from Bloomberg’s David Ingels shows…

… and culminating over the weekend with a warning in no uncertain terms from Citi, which said that at least four key economic indicators are “starting to wave red flags” among which:
• The Markit PMI is starting to turn over
• China’s Inflation Surprise Index – a leading indicator to global inflation metric – has posted a recent sharp drop
• China’s import trade has likewise tumbled after surging recently
• Chinese Iron Ore imports into Qingado port have plunged

… moments ago China’s National Bureau of Statistics validated the mounting fears, when it reported misses across all key economic categories for the month of April, as follows:
• Retail Sales 10.7% Y/Y, Exp. 10.8%, Last 10.9%
• Fixed Asset Investment 8.9% Y/Y, Exp. 9.1%, Last 9.2%
• Industrial Output 6.5% Y/Y, Exp. 7.0%, Last 7.6%
• Industrial Production YTD 6.7% Y/Y, Exp. 6.9%, Last 6.8%

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Big meeting, Putin, Erdogan et al, but not India, US, Germany and more. Shaky.

• Why India Is Cool Towards China’s Belt And Road (SCMP)

It is one of the most imaginative and ambitious programmes ever to be rolled out by a government. It represents a broad strategy for China’s economic cooperation and expanded presence in Asia, Africa and Europe, and has been presented as a win-win initiative for all participating nations. But for India, the connotations of China’s Belt and Road Initiative” are somewhat different. A flagship programme and the most advanced component of the initiative, the China-Pakistan Economic Corridor (CPEC), passes through Pakistan-occupied Kashmir, a region that belongs to India and is under the control of Pakistan. As a country acutely conscious of its own sovereignty-related claims, China should have no difficulty in appreciating India’s sensitivities in this regard.

While investment in the Gwadar port, roads and energy projects is reported to have increased from US$46 billion to US$55 billion, CPEC lacks economic justification for China and its geopolitical drivers cause legitimate anxieties in India. The Belt and Road plan is a practical economic strategy for China’s objectives to connect the region, seek new growth engines for its slowing economy, utilise its surplus capacity, and develop and stabilise its western regions. It may also bring benefits to partner countries. However, it also has a strategic and political agenda which remains opaque. Apart from the CPEC, India also has misgivings about the manner in which the Belt and Road Initiative is being pursued in its neighbourhood. For instance, the development of ports under Chinese operational control as part of the Maritime Silk Road strategy has raised concerns in India which need to be addressed.

India has repeatedly conveyed its strong objections regarding the CPEC to China. The Belt and Road plan is a Chinese initiative rather than a multilateral enterprise undertaken after prior consultation with potential partner countries, and India has not endorsed it. There is an expectation in India that China will take India’s sensitivities into account while formulating its plans. Clearly, there is room for closer consultations between China and India on the objectives, contours and future directions of the Belt and Road. However, India has considered synergy-based cooperation on a case-by-case basis, where its interests for regional development converge with that of other countries, including China.

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India’s right, the Silk road is financed with Monopoly money.

• China’s Silk Road Summit: India Skips, Warns Of “Unsustainable Debt” (ZH)

Alas, the meticulously scripted plan to showcase China’s growing economic and trade dominance did not go off quite as smoothly as Xi had planned. First, just hours before the summit opened, North Korea launched its latest ballistic missile, provoking Beijing and further testing the patience of China, its chief ally. Ironically, the United States had complained to China on Friday over the inclusion of a North Korean delegation at the event. Then, in a sign that China’s rampant, credit-fuelled growth is making some just a little uncomfortable, some Western diplomats expressed unease about both the summit and the plan as a whole, seeing it as an attempt to promote Chinese influence globally according to Reuters. They are also concerned about transparency and access for foreign firms to the scheme.

Australian Trade Minister Steven Ciobo said Canberra was receptive to exploring commercial opportunities China’s new Silk Road presented, but any decisions would remain incumbent on national interest. Responding to criticism, Xi said that “China is willing to share its development experience with all countries” and added “we will not interfere in other countries’ internal affairs. We will not export our system of society and development model, and even more will not impose our views on others.” But the biggest surprise was India, the world’s fastest growing nation and the second most populous in the world, which did not even bother to send an official delegation to Beijing and instead criticised China’s global initiative, warning of an “unsustainable debt burden” for countries involved.

Indian foreign ministry spokesman Gopal Baglay, asked whether New Delhi was participating in the summit, said “India could not accept a project that compromised its sovereignty.” India is incensed that one of the key Belt and Road projects passes through Kashmir and Pakistan. The nuclear-armed rivals have fought two of their three wars over the disputed region, Reuters notes. “No country can accept a project that ignores its core concerns on sovereignty and territorial integrity,” Baglay said. Furthermore, he also warned of the danger of debt. One of the criticisms of the Silk Road plan is that host countries may struggle to pay back loans for huge infrastructure projects being carried out and funded by Chinese companies and banks. “Connectivity initiatives must follow principles of financial responsibility to avoid projects that would create unsustainable debt burden for communities,” Baglay said.

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Really, Brussels, Washington, you think it’s a good idea to let China buy up Greece? No security jiggers at all?

• Number of Chinese Tourists Visiting Greece to Rise 10-Fold (BBG)

Fosun International, the Chinese conglomerate that’s part of a venture to transform the former Athens airport site into one of the biggest real-estate projects in Europe, is now turning its attention to Greek tourism. Fosun wants to use its stake in tour operator Thomas Cook to start building vacation packages specifically for the vast Chinese market, Senior Vice President Jim Jiannong Qian said in a May 4 interview in Athens. The Chinese government predicts 1.5 million of its citizens will start vacationing in Greece in the medium term. Tourism accounted for over one-quarter of Greece’s GDP in 2016, according to the Greek Tourism Confederation. Visitor numbers in 2016 reached 28.1 million, up 7.6% from 2015. Tourists generated €13.2 billion in travel receipts, according to the Bank of Greece. Of these travelers, 150,000 came from China, Beijing says.

“Greece is a very safe place for visitors,” said Qian who is also president of Fosun’s Tourism and Commercial Group. There are also good opportunities for tourism investments in Greece, he said. Fosun is in discussions to buy existing hotels and resorts, or for the construction of new ones, in Greece by its fully owned portfolio company Club Med. An increase in Chinese visitors to Greece would eventually lead to direct flights from Beijing and Shanghai to Athens, Qian said. The 54 year-old Qian said the situation in Greece has changed since the company first invested in Athens-based luxury goods retailer Folli Follie Group in 2011. “Greece’s economy is recovering now and can also deliver very good opportunities for foreign investors,” he said. “We look at the figures from retail sales and of the tourism sector,” and see the improvement.

Fosun, which manages €64.3 billion in total assets globally, has invested more than €200 million in Greece through its direct holding in Folli Follie and indirectly through Thomas Cook and Club Med, Qian said. “If you can help the economy grow, for example if we have the package product for Greece, then we create more jobs for restaurants, for retail stores, for taxi drivers.” The company, the biggest private Chinese company that invests in Europe, owns German lender Hauck & Aufhaeuser and Portuguese insurance company Fidelidade, and doesn’t rule out an investment in the Greek banking sector if an opportunity arises in the future, Qian said, refuting reports that the group has already made a bid to acquire shares in Greek banks. Fosun has already placed a bid for the acquisition of National Bank of Greece’s insurance unit National Insurance, and according to Qian, has no money ceiling when it comes to investments, as long as the opportunity is worth it.

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Rerouted trips to Greece?

• New Zealand Slashes Chinese Tourism Forecast, Denting Outlook (BBG)

New Zealand has slashed its forecast for Chinese tourist spending over the next six years, denting growth expectations for its biggest foreign-exchange earner. Spending by Chinese tourists will rise to NZ$3.73 billion ($2.5 billion) by 2022 from NZ$1.65 billion last year, according to the Ministry of Business, Innovation and Employment’s latest annual forecasts. That’s 30% less than the NZ$5.32 billion expected in last year’s projections. “There is significant geopolitical risk around the China market,” the ministry said in the report, published Friday, adding that indicators like early-2017 visa approvals were “suggesting a short-term slowing in the market.” The downward revision indicates overall revenue from tourists won’t grow as quickly as previously expected, and that Australia will remain the biggest source of tourist dollars until 2021. Last year, officials forecast China would take the top ranking in 2017.

Tourism, which last year overtook dairy as New Zealand’s top export, has been growing faster than expected. Visitor numbers surged to 3.5 million in 2016, four years sooner than had been envisaged in 2014, and are projected to jump to 4.9 million by 2023. Still, the uncertainty around China “adds some risk to both China’s and the national forecast numbers,” the ministry said in its latest report. The slower forecast trajectory for Chinese spending growth reflects fewer visitors and less spending per day than projected 12 months ago. Arrivals from China are expected to reach 812,000 in 2022. That’s less than the 921,000 estimated in last year’s report. Average spending per day is forecast to be NZ$343 in 2022 rather than the NZ$394 estimated a year ago. As a result, total foreign visitor spending will rise to NZ$15.3 billion in 2023, according to the forecasts. The 2016 prediction was that spending would rise to NZ$16 billion by 2022.

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As if we needed any more evidence that credibility is the least of their worries.

• Fed Officials Test New Argument for Tightening: Protect the Poor (BBG)

To protect the poorest Americans, should central bankers raise interest rates faster? At least one of them is making that argument. During a speech last month, Federal Reserve Bank of Kansas City President Esther George said she was “not as enthusiastic or encouraged as some when I see inflation moving higher” because “inflation is a tax and those least able to afford it generally suffer the most.” She was referring in particular to rental inflation, which she said could continue rising if the Fed doesn’t take steps to tighten monetary conditions. And while the idea of inflation as a tax that hits the poor the hardest is not a new one, its role in the current debate over what to do with interest rates marks a bit of a twist from recent years.

Widening disparities in income and wealth have over the past several years permeated national politics and helped fuel the rise of populist movements around the developed world. Against this backdrop, there has been a growing body of research, some of it produced by economists at central banks, backing the idea that easier monetary policy tends to be more progressive. That work, set against the notion that a stricter approach toward containing inflation has the best interests of the lowest-income members of society at heart, is thrusting Fed policy makers toward the center of a debate they usually like to leave to politicians. It’s becoming more contentious as Fed officials seek to declare victory on their goal of maximum employment even while the percentage of prime working-age Americans who currently have jobs is still nowhere close to the peaks of the previous two economic expansions.

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“The company, with the unfortunate Toronto Ticker “BAD”..”

• Marc Cohodes, The Scourge Of Home Capital, Reveals His Latest Short (ZH)

Having single-handedly hounded Home Capital Group – the company which we predicted in 2015 would be “ground zero” for any potential Canadian financial crisis, and has emerged as the Canada’s equivalent to the infamous New Century which in 2007 presaged the upcoming global financial crisis – into near oblivion, noted chicken-farmer and short-seller, Marc Cohodes, over the weekend revealed the full details behind his latest short thesis: Canadian oil and gas service provider, Badger Daylighting. Badger, for those unfamiliar, is a company which uses a technique called hydrovac excavation, in which pressurized water and a powerful vacuum are used to expose buried pipes and cables. The company, with the unfortunate Toronto Ticker “BAD”, already had a bad day on Friday when it revealed earnings and revenues that badly missed consensus expectations.

Insult was added to injury after Cohodes, who most recently gained prominence for his short bet on Home Capital Group, previewed pages of a negative presentation on Badger to his Twitter feed Friday, saying that the shares are overvalued and that there are low barriers to entry. As a result, BAD shares plunged as much as 28% to C$22 in Toronto, the biggest intraday decline since November 2006, after previously dropping 4.8% YTD. To be sure, on Friday Badger CEO Paul Vanderberg, without in depth knowledge of Cohodes’ thesis, responded to Cohodes saying “my focus on that is really not to focus on it” during the earnings call and adding that “I don’t agree with the thesis.” Obviously, especially since neither he nor anyone else had seen or read it.

Chief Financial Officer Jerry Schiefelbein also responded, saying Badger is working to train new workers and managers on how to operate more efficiently, which should help reduce costs. He said the company’s first-quarter sales were “pretty good” following a couple of tough years. As for Cohodes’ criticism about low barriers to entry, Schiefelbein was quoted by Bloomberg saying tat Badger’s size gives it an advantage over mom-and-pop shops that would seek to compete with the company. Badger can tackle bigger projects for municipalities, has safety systems that larger customers require and it can move assets to markets where there is more demand, he said. “It’s not just digging holes in the ground.”

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Only interesting if his French backers want something Germany doesn’t. But then they all want the eurozone.

• Eyes on Euro Fighter Macron (K.)

Macron has taken over from Francois Hollande hoping to reform not just his own country but the euro as well. “We must collectively recognize that the euro is incomplete and cannot last without major reforms,” he said during a speech at Humboldt University in Berlin this January. “It has not provided Europe with a full international sovereignty against the dollar on its rules, it has not provided Europe with a natural convergence between the different member-states.” The centrist politician warned that without reform the euro may be obsolete in 10 years. He has proposed a series of changes to improve the single currency, with the centerpiece being a budget for the eurozone that will be monitored by the European Parliament and backed by borrowing capacity so that it can finance investments, provide emergency loans via the European Stability Mechanism and help eurozone members if they suffer significant economic shocks.

Macron has also suggested the pooling of debt in the eurozone through the issuing of eurobonds, which are anathema to German conservatives. “The establishment of this budget will have to come with a convergence agenda for the eurozone, an anti-dumping agenda that will set common rules for fiscal and social matters,” added Macron in a message to his German hosts that proceeded to become clearer during his speech. “In a monetary union, a country’s success cannot be sustainably achieved to the detriment of another, which is a limit of the competitiveness approach, because competitiveness is always about comparing yourself with a neighbor,” he said. “The difficulties of one are always the problems of all.” Although Macron admits that France must carry out its own labor, market and education reforms and respect fiscal targets, his words are a direct attempt to overturn the logic and policy that has dictated the eurozone’s response to its crises since 2010 and to shape how its overall approach will evolve from this point onward.

In doing so, Macron is taking the fight to Germany, which previous French presidents failed to do. “When you look at the situation, the dysfunctioning of the euro is good news for Germany, I have to say. You benefit from this dysfunctioning,” he told his audience in Berlin. “[The] euro today is a sort of weak Deutschmark, which favors the German industry,” he added. These are views that have rarely been aired publicly by key players in the eurozone and it is little surprise that the initial response from Berlin was to suggest that Macron has enough on his plate at home to be focusing on euro reform. “German support cannot replace French policymaking,” was Merkel’s first comment on the subject after Macron comfortably won last Sunday’s vote in France.

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But Schäuble on Friday said transfers were needed. You need a fiscal union to make that work.

• Germany Will Not Rush Into Euro Area Fiscal Union (CNBC)

Now what? “More Europe” say those who believe that problems were caused by an inadequate integration process that allowed policy mistakes by incompetent national governments. To avoid similar mistakes in the future, they are now urging a unified fiscal policy to complete the monetary union. That is what the French call the “fuite en avant” – a semiotic delight roughly translated as fleeing from an unsolvable problem. Here is what that problem looks like: The fiscal union implies a euro area federal state with a common management of public finances. The area’s budget, public debt financing, tax policies, transfer payments, etc. would be managed by a euro area finance ministry. That would also require harmonization of labor, health care and education policies, and a whole range of other social welfare programs. Institutionally, this integration drive cannot stop at the finance ministry. There would also have to be a euro area executive and legislative authority to exercise administrative and democratic controls over tax and spend decisions.

[..] How could Germany, with a budget surplus last year of 0.8% of GDP and the public debt of 68.3% of GDP, accept a fiscal union with Spain running the euro area’s largest budget deficit of 4.5% of GDP and a public debt of 100% of GDP? France and Italy have similar public finance profiles. Last year, France had a second-largest euro area budget deficit of 3.4% of GDP and a public debt of 96% of GDP. During the same period, Italy ran a budget deficit of 2.4% of GDP and a public debt of 133% of GDP. This means that half of the euro area economy (France, Italy and Spain), with serious structural problems of public finances, would become part of a de-facto federal state with a fiscally sound Germany. Hard to imagine, isn’t it? And yet, that’s the program that the new French President Emmanuel Macron will apparently discuss Monday when he visits German Chancellor Angela Merkel in Berlin.

France, Italy and Spain already know the answer. Chancellor Merkel is relieved and delighted that the most dangerous anti-EU parties in France and The Netherlands lost the recent elections, but her government is firmly opposed to the euro area fiscal union. German public opinion fully shares that position. And German media of all political stripes are having a field day lampooning the idea that German taxpayers should be asked to pay for countries that cannot control their debts and deficits. This is also an awkward moment to even talk about the call on the German public purse while the country is gearing up for general elections on Sept. 24, 2017. The best that Germany can offer, under these circumstances, is a strict enforcement of existing euro area fiscal rules: Budget deficits limited to 3% of GDP and the gross public debt to 60% of GDP. About half of the euro area members are now falling far short of these criteria.

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Will the rich world ever come clean? No.

• What Germany Owes Namibia For Genocide (Econ)

On October 2nd 1904 General Lothar von Trotha issued what is now notorious as “the extermination order” to wipe out the Herero tribe in what was then German South West Africa, now Namibia. “Within the German borders every Herero, with or without a gun, with or without cattle, will be shot,” his edict read. During the next few months it was just about carried out. Probably four-fifths of the Herero people, women and children included, perished one way or another, though the survivors’ descendants now number 200,000-plus in a total Namibian population, scattered across a vast and mainly arid land, of 2.3m. The smaller Nama tribe, which also rose up against the Germans, was sorely afflicted too, losing perhaps a third of its people, in prison camps or in the desert into which they had been chased.

A variety of German politicians have since acknowledged their country’s burden of guilt, even uttering the dread word “genocide”, especially in the wake of the centenary in 2004. But recent negotiations between the two countries’ governments over how to settle the matter, the wording of an apology and material compensation are becoming fraught. Namibia’s 16,000 or so ethnic Germans, still prominent if not as dominant as they once were in business and farming, are twitchy. The matter is becoming even more messy because, while the German and Namibian governments set about negotiation, some prominent Herero and Nama figures say they should be directly and separately involved—and have embarked on a class-action case in New York under the Alien Tort Statute, which lets a person of any nationality sue in an American court for violations of international law, such as genocide and expropriation of property without compensation.

The main force behind the New York case, Vekuii Rukoro, a former Namibian attorney-general, demands that any compensation should go directly to the Herero and Nama peoples, whereas the Namibian government, dominated by the far more numerous Ovambo people in northern Namibia, who were barely touched by the wars of 1904-07 and lost no land, says it should be handled by the government on behalf of all Namibians. The Namibian government’s amiable chief negotiator, Zedekia Ngavirue, himself a Nama, has been castigated by some of Mr Rukoro’s team as a sell-out. “Tribalism is rearing its ugly head,” says the finance minister, who happens to be an ethnic German.

The German government says it cannot be sued in court for crimes committed more than a century ago because the UN’s genocide convention was signed only in 1948. “Bullshit,” says Jürgen Zimmerer, a Hamburg historian who backs the genocide claim and says the German government is making a mess of things. “They think only like lawyers, not about the moral and political question.” “None of the then existing laws was broken,” says a senior German official. “Maybe that’s morally unsatisfactory but it’s the legal position,” he adds.

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Debt Rattle May 7 2017

May 072017
 
 May 7, 2017  Posted by at 9:28 am Finance Tagged with: , , , , , , , , , ,  1 Response »


Rembrandt Old Man Sitting 1631

 

• The Great Productivity Slowdown (WSJ)
• Take Away Finance, and Britain’s Foreign Investment Figures Collapse (Econ.)
• Round 2 Of French Presidential Elections Held Amid State Of Emergency (RT)
• Charles Gave Expects “Total Mayhem” In France Even If Macron Is Elected (ZH)
• Angry Merkel Slaps Down Juncker For Inflaming Brexit Talks (DM)
• Far-Right ‘Terror Plot’ Rocks The German Army (AFP)
• World Bank Warns Of China Debt Risk From Backdoor Local Borrowing (AFR)
• Spain’s Government Presses Property-Bubble Rewind Button (DQ)
• We Are On The Edge Of The Abyss But We Ignore It (G.)
• The End of Wild Elephants: Africa To Become One Giant Food Farm (G.)
• IMF Wants Greek Opposition To Promise Not To Reverse Agreed Measures (K.)
• Greece Can Never Pay Its Debts. So Why Not Admit It? (Worstall)
• EU’s Moscovici: Macron Will Be Greece’s Ally (Ana)
• Bangladesh Now Single Biggest Country of Origin for EU-Bound Migrants (Ind.)

 

 

One thing nobody seems to be able to figure out. And one more thing that everyone thinks should keep on growing.

• The Great Productivity Slowdown (WSJ)

Equity markets have hit multiyear highs and consumer sentiment is buoyant. Yet economic productivity remains lackluster. The Labor Department announced Thursday that worker productivity fell 0.6% since January, a much bigger drop than expected. This is neither a statistical illusion nor a hangover from the Great Recession. The productivity slowdown began long before the financial crisis, and it has worsened markedly in the past six years. The drop-off extends to wholesale and retail trade, manufacturing, construction, utilities and a host of private and public services. Industries that consume and produce information technology and communications are not immune to the slowdown. From 1950 to 1970, U.S. productivity grew on average by 2.6% annually. From 1970 to 1990 it fell to 1.5%.

The information technology boom of the ’90s interrupted the slide, but since 2010 U.S. productivity growth has been in free fall. It is now roughly 0.6% a year. No wonder Federal Reserve Chair Janet Yellen recently called low productivity a “significant problem.” Various estimates suggest that had U.S. productivity growth not slowed, GDP would be about $3 trillion higher than it is today. How is this happening during a technological revolution? Some think the data are wrong. Economist Joel Mokyr explained in 2014 that metrics devised for a “steel-and-wheat economy” fail to capture adequately transformative advances in information technology, communications and the biosciences. Technology has reduced the cost of information, expanded consumer choice, and provided customization and better price comparison.

This progress has been mostly missed in current statistics. GDP also does not fully capture metrics like time saved from shopping online. Nor does it include the value of leisure and the well-being that technology provides its users. Many economists contend that properly counting free digital services from companies like Google and Facebook would substantially boost productivity and GDP growth. One of the highest estimates, calculated by economists Austan Goolsbee and Peter Klenow, stands at $800 billion. That’s a big number, but not big enough to fill a $3 trillion hole.

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Talking about reasons productivity is not growing…

• Take Away Finance, and Britain’s Foreign Investment Figures Collapse (Econ.)

Here is a riddle. Britain, for now at least, is loved by foreign investors. The stock of inward foreign direct investment (FDI) in Britain’s assets and shares is larger than anywhere except America and Hong Kong. In the past decade overseas investors have splurged some £600bn ($772bn), equivalent to a third of British GDP, to acquire over 2,000 British firms. The textbooks say that foreign investments make a country more productive. The new arrivals should bring with them cutting-edge capital assets and best-practice management. So why over the past decade has Britain’s productivity barely improved? The question matters for all Britons. If productivity growth is low, then wage growth will be too. Many factors determine Britain’s weak productivity growth, including creaky infrastructure. But new official data suggest that foreign investors are doing a lot less to improve the economy than commonly assumed.

The figures classify FDI flows into around 100 industries. In 2015 financial services accounted for an astonishing 95% of net inflows. This could include, for instance, foreign funding for Britain’s burgeoning financial-technology sector. Finance was unusually dominant in 2015, though even in 2012-14 the industry made up around 60% of the net figure. Remove financial services, and overall in 2015 a tiny amount of net foreign investment flowed into Britain—a few billion pounds at best. Many industries saw “negative inflows”, suggesting that foreigners were actually disinvesting, selling assets they had acquired back to British firms, for instance. In 2015 they pulled around £20bn from the oil-and-gas sector. Perhaps £1.5bn drained from manufacturing. Finance aside, investors seem to see few profitable opportunities in Britain.

What foreign investment does flow into the “real” economy may make surprisingly little difference. Much of it seems to be about one big company horizontally acquiring another, perhaps with the aim of eliminating overlapping marketing costs (such as in the Kraft-Cadbury deal of 2010) or of acquiring a trophy asset (such as the Tata-Corus steelmaker deal of 2007). A chunk of investment in Britain, meanwhile, is a statistical by-product of big firms moving headquarters for tax purposes rather than anything meaningful. As Britain begins the process of leaving the EU, interest from foreign investors is only likely to shrink. If so, the prospects for the kind of foreign investment that lifts productivity will start to look even gloomier.

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Democracy and emergency. Odd pair.

• Round 2 Of French Presidential Elections Held Amid State Of Emergency (RT)

French voters are heading to the polls to choose France’s next president. The presidential runoff between centrist Emmanuel Macron and right-wing Marine le Pen is the first to take place amid an ongoing state of emergency, introduced in the country after 2015 terrorist attacks. French authorities have introduced extra security measures for the poll. This time “more than 50,000 policemen, gendarmes will be deployed [across the country] on Sunday”, French interior ministry spokesman Pierre-Henry Brandet told AFP on Thursday.Soldiers from Operation Sentinel will also “ensure security around polling stations and [will be able] to intervene immediately in case of any incident,” he added. Operation Sentinel was launched by the French Army in the aftermath of the Charlie Hebdo attack in January of 2015 and the subsequent Paris strikes.

Paris police promised that at least 12,000 soldiers and police were to be drafted to Paris and its surrounding suburbs on Sunday, with 5,000 of securing polling stations and guaranteeing public order, as cited by AFP. People on social media have been calling for protests on May 7, regardless of the election result. The hashtags #nimacronnilepen (neither Macron, nor Le Pen) and #SansMoiLe7Mai (May 7 without me) was launched after the first round of the elections on April 23. Macron won the first round by securing 24.01 percent of the votes to le Pen’s 21.3 percent. Demonstrations have rocked France following the 1st round vote with people rallying against both candidates. “Neither fatherland, nor the boss, neither le Pen nor Macron,” banners held by protesters read. The rallies have often resulted in violence with protesters throwing stones and smoke grenades and police and officers responding with tear gas.

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“..since they knew they were going to lose the election, they created a guy in a hologram that would run for them and prevent them from losing power.”

• Charles Gave Expects “Total Mayhem” In France Even If Macron Is Elected (ZH)

Venerable French investor Charles Gave has been managing money and researching markets for over 40 years; as such France’s elder statesman of asset allocation perhaps best captures the mood ahead of the most crucial Presidential election in a generation. In conversation with Dr. Pippa Malmgren, Charles breaks down national politics to understand why voters have rejected the establishment and the market impact of both outcomes, and what to expect from tomorrow’s election. First, Gave, who says “I’m not so sure that Macron will win”, is asked by Malmgren to walk RealVision viewers through what Macron’s agenda would look like in case of a victory. Gave is unable to do so for several simple reasons:

“Well, first, nobody knows. Because during the whole campaign, all these talks were on one hand, on the other. I’m in favor of apple pie, and motherhood, you see. Basically he has, to my knowledge, very little program. So he’s running. That is what Hollande said. That he was going to make some fundamental changes without hurting people. And so Macron is a big, empty suit. That’s what he is. You did the right curriculum vitae, he went to the right schools. And you have the feeling that the guy never had an original idea in his life. He was always a good student.

And moreover, there is a strong suspicion that he’s a kind of golem created by Hollande and all these guys. So since they knew they were going to lose the election, they created a guy in a hologram that would run for them and prevent them from losing power. So to a certain extent, the French political system has been captured by what you can call the Technocratic class. And whether from the left or the right, it didn’t make any difference. And this Technocratic class is presenting Macron as a brand new fellow. He is nothing brand new. These guys have been in power for 50 years for God’s sakes. So this is basically nothing.

If Le Pen wins, it’s pretty simple. The bond market in France, Italy, Spain cannot open on Monday morning. And I suppose the euro is dead in the following week. And then you have to buy Europe like crazy. Southern Europe. Why Southern Europe? Because it is Germany’s markets that would bear the brunt of the selloff, as the dissolution of the euro and European Union would effectively bring about the end of Germany’s economic hegemony (while at the same time benefitting France). The Germans have made a colossal mistake, which is that they have all the production in Germany. So they’re extremely efficient, well-organized, and they have developed massive current account surpluses. Half of that surplus is in cars. The margin on cars is around 4%. Imagine that the euro breaks down.

The deutschmark comes back. The deutschmark goes up 15, 20%. And the whole German industry, all the production base in Germany, becomes bankrupt in no time at all. Compare that to France. France we have magnificent big companies that have been intelligent enough to produce everywhere in the world, to operate from everywhere in the world, and be totally independent from what’s happening in France. What they have in France is their headquarters. And that’s about it. So if Europe breaks, you should be long France on the stock market, and short Germany. Big time.”

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Good cop bad cop. Or should I say: here’s how you can tell who’s the boss in Europe?!

• Angry Merkel Slaps Down Juncker For Inflaming Brexit Talks (DM)

A rift emerged between Angela Merkel and Jean-Claude Juncker last night after she reportedly accused him of ‘inflaming’ Brexit talks by leaking details of his row with Theresa May. The German Chancellor’s relations with the EU Commission president are said to have ‘soured’ after Mr Juncker described Mrs May as living in ‘another galaxy’ following a recent dinner. According to German newspaper Der Spiegel, which has close links with Merkel’s government, she believes the leaking of private conversations – blamed on Juncker – ‘is not helpful in heating up the mood in this way’. The Der Spiegel article, headlined ‘Merkel angered by Juncker at Brexit dinner’, said it had made her mood ‘sour’ towards him. Juncker’s ‘another galaxy’ comment was made in a telephone call with Mrs Merkel after he clashed with Mrs May over dinner in Downing Street 11 days ago.

Juncker reportedly told Mrs Merkel: ‘It went very badly. She is in a different galaxy.’ The leak was blamed on Mr Juncker or his formidable German chief of staff, Martin Selmayr. In remarks clearly aimed at Mr Juncker, a furious Mrs May responded to the leaks last week by accusing ‘the bureaucrats of Brussels’ of trying to influence the General Election. But a defiant Mr Juncker took another swipe at Britain on Friday by claiming at a European Union summit in Italy that the English language was already ‘losing its importance in Europe’. The Der Spiegel article echoed public comments made by Mrs Merkel on Friday in which she struck a markedly more conciliatory tone towards Mrs May than outspoken Mr Juncker. She stressed that she would approach Brexit negotiations ‘fairly and constructively’. Mrs Merkel denied she aimed to cause trouble in the Brexit talks and said she wanted ‘clarity and security as quickly as possible’ for EU residents in Britain, including about 100,000 Germans.

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Germany’s much less serene than it seems.

• Far-Right ‘Terror Plot’ Rocks The German Army (AFP)

The bizarre case of a racist soldier allegedly plotting an attack while posing as a Syrian refugee and several abuse scandals have sparked a war of words between Germany’s defence minister and the military. It is a dangerous political battle for Ursula von der Leyen, the first woman in charge of the armed forces, who is often mentioned as a potential successor to Chancellor Angela Merkel. The mother-of-seven has sternly criticised military “attitude and leadership problems”, highlighted by the case of the soldier and by recent sexual abuse and hazing scandals. This in turn has made her a target of chastened rank-and-file soldiers who charge she is tarring them all while dodging personal responsibility after more than three years on the job.

The escalating conflict started with the arrest a week ago of 28-year-old army lieutenant Franco Albrecht, who was stationed at a Franco-German base near Strasbourg. He came to the notice of the authorities after Austrian police caught him with a loaded handgun at the Vienna airport in February. The subsequent investigation found that, amid Germany’s 2015 mass influx of refugees, he had created a fake identity as a Damascus fruit seller called “David Benjamin”. Incredibly, the German who speaks no Arabic managed to gain political asylum, a spot in a refugee shelter and monthly state benefits for his fictitious alter ego. Prosecutors charge that Albrecht harboured far-right views and, with at least one co-conspirator, plotted an attack with the apparent aim of discrediting foreigners.

Media reports say he kept “death lists” with the names of top politicians, including former president Joachim Gauck, some cabinet ministers and left-leaning, anti-fascist MPs. It has since emerged that the lieutenant had expressed rightwing extremist views in a master’s thesis he submitted in 2014, in which he theorised about the end of Western civilisation through immigration. In the paper seen by AFP, he argued that immigration was causing a “genocide” in western Europe, adding that “this is a mathematical certainty”. However, the paper was buried, without disciplinary action – something the minister attributed to a “misunderstood esprit de corps” and superior officers who “looked the other way”.

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I’ve mentioned the power of Chinese shadow banking a thousand times. That power is still growing.

• World Bank Warns Of China Debt Risk From Backdoor Local Borrowing (AFR)

The World Bank has warned that Chinese local governments remain addicted to off-budget borrowing, despite Beijing’s efforts to impose fiscal discipline on localities and curb ballooning debt. Runaway growth of local government debt is widely seen as a huge risk for China’s economy and financial system. Provinces, cities and counties borrowed heavily to spend on infrastructure to keep economic growth humming after the 2008 financial crisis. But the practice has continued and economists warn that returns on new investment are falling and white elephants are common. Many projects do not produce enough cash flow to service their debt. In 2014 China moved to eliminate borrowing through special-purpose vehicles, which local officials had used to circumvent a legal ban on direct borrowing.

Under the moniker of “close the back door, open the front door”, China’s parliament ended the legal ban, enabling localities to borrow within clear limits set by Beijing. Meanwhile, local government finance vehicles were ordered to cease disguised fiscal borrowing. To deal with legacy debt, Rmb8tn ($US1.2tn) in outstanding local government funding vehicle (LGFV) borrowing was converted into on-budget provincial debt through a bond swap. But growth of LGFV debt has actually accelerated since 2015, the World Bank warned in a confidential March presentation obtained by the Financial Times. Despite the swap programme, “LGFVs continued to borrow and increase their liabilities at a very rapid pace” in 2015-16, the bank’s lead China economist John Litwack and analyst Luan Zhao said.

Local governments and their LGFVs account for “the vast majority of public expenditures and public investment”, they noted, adding that “government and LGFV finances [are] intertwined in complicated ways, making separation difficult in practice”. Growth of LGFV liabilities accelerated from 22% in 2014 to 25% in 2015 and stayed high at 22% in the first half of 2016, the authors found. The presentation noted that Beijing’s effort to stop the use of LGFVs as quasi-fiscal entities may have unintentionally encouraged them to increase borrowing. Local fiscal authorities are now forbidden from officially monitoring LGFV finances, since to do so would imply that the government stands behind their debt. “Instructions to no longer even monitor finances of LGFVs can give a dangerous impression of ‘free money’,” the presentation warned.

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Especially in euro countries, governments need mortgage loans for money/credit creation. Their governments and central banks lost that ability.

• Spain’s Government Presses Property-Bubble Rewind Button (DQ)

After spending the last few years groggily getting back onto its feet following the collapse of one of the most spectacular — and destructive — real estate bubbles of this century, Spain’s economy is once again being primed for another property boom. In the last quarter prices registered a year-on-year rise of 4.5%. Rents are also surging, though the country is still home to over half a million vacant properties. The cost of renting in Madrid and Barcelona, which between them account for 16% of those vacant properties, has reached historic highs, according to a new study by the online real estate market place Idealista. In Madrid, rents have risen on average by 27% since 2013; in Barcelona they’ve surged over 50%.

This trend is being driven by two main factors: the recent explosion in tourist rentals, as well as a general shift in consumer behavior as more and more people choose (or have little choice but) to rent rather than buy property. While rents soar, Spain’s mortgage market, the biggest source of profits for the nation’s banks, is also showing signs of life. In 2016 the number of mortgages issued rose by just over 10% to 281,328. But that’s merely a fraction of the 1,324,522 mortgages signed in 2006, just before the bubble burst. The banks would like nothing better than to issue more and bigger mortgages, but even with interest rates at their lowest point in history, most people either can’t afford the current prices or don’t want to take on more debt. Spain’s fragile coalition government is determined to change that.

In its latest budget announcement it revealed plans to set aside billions of euros in 2018 for publicly funded mortgage subsidies. Young people under the age of 35 who are earning gross incomes of less than €1,600 per month will be eligible for payments of up to €10,800 to help them buy their first home. There will also be rental subsidies for people under the age of 35, for up to half the price of the rent. [..] In Spain today there are roughly two million fewer people under the age of 40 in full-time employment than there were in 2006, due to a variety of factors: demographics (i.e. there are now fewer people under the age of 40), rampant job destruction, and the mass exodus of young Spaniards to greener pastures. Even for many of those that chose to stay behind and actually found work, the reality is still alarmingly bleak.

According to the Spanish daily ABC, of the 1.7 million job contracts signed in December last year, over 92% were for temporary jobs. Since the Financial Crisis, precarity has become the ubiquitous reality for most young Spaniards. Many end up earning so little in jobs that offer scant, if any, financial security that they have little choice but to stay at home with their parents, sometimes well into their thirties. According to data released this week by Eurostat, the average Spaniard does not move out of the family residence until they are 29 years old. If Spain’s new, dwindling generation of “workers” cannot afford to leave home, who will buy or rent the properties sitting idle on the balance sheets of the banks, “bad bank” Sareb, and the global private equity firms that piled into the market a few years ago?

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We are designed to ignore distant danger, so we can better prepare for what’s near.

• We Are On The Edge Of The Abyss But We Ignore It (G.)

[..] the evidence tells us that so powerful have humans become that we have entered this new and dangerous geological epoch, which is defined by the fact that the human imprint on the global environment has now become so large and active that it rivals some of the great forces of nature in its impact on the functioning of the Earth system. This bizarre situation, in which we have become potent enough to change the course of the Earth yet seem unable to regulate ourselves, contradicts every modern belief about the kind of creature the human being is. So for some it is absurd to suggest that humankind could break out of the boundaries of history and inscribe itself as a geological force in deep time. Humans are too puny to change the climate, they insist, so it is outlandish to suggest we could change the geological time scale.

Others assign the Earth and its evolution to the divine realm, so that it is not merely impertinence to suggest that humans can overrule the almighty, but blasphemy. Many intellectuals in the social sciences and humanities do not concede that Earth scientists have anything to say that could impinge on their understanding of the world, because the “world” consists only of humans engaging with humans, with nature no more than a passive backdrop to draw on as we please. The “humans-only” orientation of the social sciences and humanities is reinforced by our total absorption in representations of reality derived from media, encouraging us to view the ecological crisis as a spectacle that takes place outside the bubble of our existence.

It is true that grasping the scale of what is happening requires not only breaking the bubble but also making the cognitive leap to “Earth system thinking” – that is, conceiving of the Earth as a single, complex, dynamic system. It is one thing to accept that human influence has spread across the landscape, the oceans and the atmosphere, but quite another to make the jump to understanding that human activities are disrupting the functioning of the Earth as a complex, dynamic, ever-evolving totality comprised of myriad interlocking processes.

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China is a major factor in this, as much as growing population is.

• The End of Wild Elephants: Africa To Become One Giant Food Farm (G.)

Elephants are in big trouble. Even if we beat poaching and illegal trade, their potential doom has been sealed in projections for population growth, and has already been priced into the commonly accepted solutions to how we humans plan to feed ourselves well into the century – by looking to Africa to be our next big breadbasket. Africa is home to 1.2 billion people, but by 2050 that number is likely to double, and may well double again by the end of the century to reach well over 4 billion. Globally, we may exceed 11 billion souls. This is of course a cause for celebration and a testament to the huge strides we’ve made in public health. We’ve all but beaten polio and yellow fever, mother and child mortality has plummeted, and we’re making headway in the fight against malaria.

Another cause for celebration is the confidence, energy and entrepreneurship in many parts of the African continent – a spirit that is unmatched anywhere in the world. It’s easy to see we’re on the cusp of enormous positive change. The obvious flipside is the environmental disaster waiting to happen. This has been compounded by number crunchers who are leaving the future of our planet’s fragile ecosystems out of the equation as they try to come up with answers about how to fill billions of bellies. Several scenarios for cropland expansion – many of them focusing on Africa’s so-called “spare land” – have already effectively written off its elephants from having a future in the wild. These projections have earmarked a huge swathe of land spanning from Nigeria to South Sudan for farming, or parts of west Africa for conversion to palm oil plantations.

Economies are already being structured for the future, and are locking us into an unsustainable path to the tune of Feed the World – but with Africa providing the food. Some models suggest that 29% of the existing elephant range is affected by infrastructure development, human population growth and rapid urban and agricultural expansion; that may rise to 63% by 2050. If we continue like this, elephants will see more of their migration routes become narrow corridors before being eventually severed. Inevitably, as competitors for space, elephants will fight it out with us. But being the dominant species on this planet, we will win. And Africa will become a giant farm.

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ROund 2 of democracy and emergency.

• IMF Wants Greek Opposition To Promise Not To Reverse Agreed Measures (K.)

The European Commission will bring down its 2017 growth estimate for Greece next week, a eurozone official said on Friday, adding that the IMF wants main opposition New Democracy to make a commitment not to reverse the reforms that the government has agreed to in the context of the bailout review should it come to power. “This is important for them,” the official said of the IMF’s demand, while adding that the eurozone has not asked for such a commitment, although it agrees it is always better to have consensus on the reforms applied. The same official said that the Commission will reduce its estimate for the Greek economic recovery this year from 2.7% “to around 2%” on May 11.

Sources say that a downward revision by the Commission of its forecast to 1.9% would not lead to a shift in its general estimate regarding Greece’s fiscal course, so it does not entail the risk of any new measures. The latest IMF forecast regarding the Greek economy was for a 2.2% expansion. If all goes well, the disbursement of the next bailout tranche will take place just before the July repayment deadline, when Greece must pay €7.4 billion to its creditors. As the European official said, if there is a final agreement at the May 22 Eurogroup, which is the optimum scenario, it will take four to five weeks for the tranche payment to clear the parliaments of eurozone member-states where necessary.

If one also takes into account the time needed for the approval by the IMF council, it will take up to six weeks, which means early July. The amount of the tranche will come to about 7 billion euros, plus the funds needed for the state to pay off its expired debts to suppliers and taxpayers until the next review comes up. The disbursement will be paid in a lump sum, but only after all prior actions have been ratified by Greece. The second review had no fewer than 140 prior actions required, of which 40 have been satisfied. Of the remainder there are about 80 that either require new legislation or presidential decrees.

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“..what should have happened was the standard IMF programme: a haircut on the debt, devalue the currency and a bit of a loan to tide things over until growth returned.”

• Greece Can Never Pay Its Debts. So Why Not Admit It? (Worstall)

Peace, sweetness and light break out in the Balkans as we’re told that the EU, the eurogroup, the IMF, Greece, the ECB and Uncle Tom Cobley agree over a Greek debt deal. Except, of course, that agreement hasn’t been reached, because the major point at issue is still being glossed over. That major point being that Greece simply isn’t going to repay all of that debt. So we still need to work out who is going to lose money, and when. Debts which cannot be repaid will not be repaid. That’s why we have bankruptcy in the first place. Or, when it comes to sovereign nations, we have debt rescheduling and IMF programmes instead of bankruptcy. When the Greek crisis first blew up, what should have happened was the standard IMF programme: a haircut on the debt, devalue the currency and a bit of a loan to tide things over until growth returned.

This is similar to the approach taken by Iceland – which has already recovered while Greece languishes – and is what the IMF has been doing for decades in other places. The one thing standing between Greece and this approach was the euro. In order to protect the integrity of the single currency, debts to the private sector banks were refinanced by public money from varying combinations of the EU itself, the ECB, the eurogroup (the group of eurozone finance ministers), the IMF and so on. This is the crucial point. There are no private sector capitalists left. If there were, we could simply say “you lost your money, better luck next time”. Instead there are only official creditors, run by politicians, who have their voters wondering what has happened or will happen to their money. For it is still true that Greece cannot repay those debts, and therefore Greece will not repay them.

All that can change is who will lose money and when. Unsurprisingly, politicians are keen to delay the inevitable until they have retired and are collecting their pensions. That the Greeks have to see theirs cut in the interim is just bad luck. This may sound terribly cynical but allow me explain the thinking. There are the true federalists happy to sacrifice a country on the altar of the euro and ever closer union, as long as the losses – losses of their own voters’ money – come to light later.

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But Merkel will not, and that’s what counts.

• EU’s Moscovici: Macron Will Be Greece’s Ally (Ana)

French presidential candidate Emmanuel Macron will support Greece and be Athens’ ally if he is elected, European Commissioner for Economic and Financial Affairs, Pierre Moscovici told the Athens-Macedonian News Agency in an exclusive statement, one day before the second round of the elections in France. “I have no doubt that with Emmanuel Macron as President, yes, Greece will continue to have a friend in France, a president friend and a government friend, and this is why these elections are also important for the Greeks,” Moscovici said, adding he has worked with Macron in the past for the Greek program.

“I know Emmanuel Macron very well. We worked together when I was finance minister, when he was deputy secretary-general next to Francois Hollande, to find positive positions concerning Greece, for Greece. France is a country who’s a friend of Greece. It will remain [a friend]” he continued. Moscovici said that being friend of Greece means, on the one hand, to encourage and follow the efforts for reforms until the end but it also means solidarity from its partners.

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Europe must find an actual response to this, or face a lot of struggle. There are too many people living in all these countries.

• Bangladesh Now Single Biggest Country of Origin for EU-Bound Migrants (Ind.)

As the refugee crisis enters its fourth year, the demographics of the men, women and children arriving on Europe’s shores are undergoing an unprecedented shift. Syrians have so far made up the largest group of migrants attempting treacherous journeys across the Mediterranean Sea, followed by Afghans, Iraqis, Eritreans and sub-Saharan Africans. But as smugglers in Libya continue to expand their ruthless human trade, their counterparts in Asia are seeing an opportunity. In the first three months of last year just one Bangladeshi arrived in Italy, but the number for 2017 stands at more than 2,800, making the country the largest single origin of migrants currently arriving on European shores.

Those rescued in the Mediterranean Sea have told aid workers they paid more than $10,000 each to be taken from Dhaka to Dubai or Turkey and onwards to Libya, where the violence and chaos engulfing the fractured country is fuelling powerful smuggling networks. The International Organisation for Migration (IOM) said the emerging route had dramatically changed the demographics of asylum seekers arriving in Italy, who until now have largely hailed from sub-Saharan Africa. “The thing that’s really changing is the main nationality of the migrants, and the number coming from Bangladesh,” IOM’s Flavio di Giacomo told The Independent.

“By the end of March last year only one Bangladeshi had arrived in Italy – and this year the number is more than 2,831 for the same period.” Some migrants taken ashore in Sicily and Apulia said their trip to Libya was organised by an “agency” that provided them with a working visa for between $3,000 and $4,000. “From Bangladesh, they first travelled to Dubai and Turkey, and finally reached Libya by plane,” an IOM spokesperson said. “At the airport, an ‘employer’ met them and took their documents.”

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Debt Rattle January 3 2017

Jan 032017
 
 January 3, 2017  Posted by at 9:59 am Finance Tagged with: , , , , , , , ,  4 Responses »


Robert Doisneau Françoise Gilot et Pablo Picasso 1952

• Fears Of ‘Massive’ Global Property Price Fall In ‘Dangerous’ Conditions (Tel.)
• Is Trump About to Debunk the Media’s ‘Putin-gate’ Conspiracy Theory? (AntiWar)
• Assange: Obama Admin Trying To ‘Delegitimize’ Trump (Hill)
• Trump Says US Safe From North Korean Nuclear Strike – No Thanks To China (G.)
• China Needs To Let Companies Go Bust To Support The System – Xie (CNBC)
• Holes in China’s Currency Wall (BBG)
• China Starts 7,500 Mile Freight Train to London as Xi Boosts Trade Ties (BBG)
• Finland Trials Basic Income For Unemployed (AP)
• US Special Operations Numbers Surge In Africa’s Shadow Wars (I’Cept)

 

 

“..raising the risk of massive price falls if markets overheat, according to the OECD..” Pretty sure they are overheated.

• Fears Of ‘Massive’ Global Property Price Fall In ‘Dangerous’ Conditions (Tel.)

Property prices have climbed to dangerous levels in several advanced economies, raising the risk of massive price falls if markets overheat, according to the OECD. Catherine Mann, the OECD’s chief economist, said the think-tank was monitoring “vulnerabilities in asset markets” closely amid predictions of higher inflation and the prospect of diverging monetary policies next year. Ms Mann said a “number of countries”, including Canada and Sweden, had “very high” commercial and residential property prices that were “not consistent with a stable real estate market”. She also said property price falls in Britain following the vote to leave the EU could “be good for the UK” if the adjustment is borne mainly by foreign investors.“We’ve already started to see some changes in real estate prices in the UK, [particularly in] the London market,” said Ms Mann.

“[What’s] interesting in terms of the implications for the UK economy is who bears the burden – who bears the adjustment cost. If it’s a non-resident then lower house prices could actually be good for the UK.” The warning comes as research by Countrywide reveals that the number of homes sold in the UK for more than the asking price has tumbled in the last year. In January 2016, 41.5pc of homes for sale in London were sold above the asking price. But this fell to just 23pc in November. Nationally, the fall was less steep: from 29.8pc in March to 23.1pc in November. The data suggest that the UK housing market could be at an inflection point with activity slowing throughout 2016, particularly in the capital, as sellers accepted lower offers while buyers deserted the market amid uncertainty over Brexit.

While prices did not fall across the country last year, there was a slowdown in activity as people chose not to buy a home. Johnny Morris, head of research at Countrywide, said: “There isn’t the same level of competition in the market now.” The Royal Institution of Surveyors reported that the number of new buyer inquiries has been at very low levels in the second half of the year. The number of new properties on the market has also been at record lows, helping to prop up prices. Mr Morris added: “We expect prices to fall next year as this slowdown works through the system. Generally the first thing to change will be the number of transactions, and then after the gap between what people will pay and how much people will accept opens up quickly and takes a while to close. Sales slow, and then there is a price adjustment.”

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Yeah, please, end this B movie.

• Is Trump About to Debunk the Media’s ‘Putin-gate’ Conspiracy Theory? (AntiWar)

“It wouldn’t be a bad opening for a Tom Clancy novel about the Cold War” – that’s how the Los Angeles Times described the sequence of events leading up to the expulsion of 35 Russian diplomats (“spies”) and the latest face-off between Washington and Moscow. Indeed the whole episode of has about it a fictional aura, which is, after all, only appropriate, since the entire basis of this latest cold war drama is pure invention. The Russian “spy nest” had supposedly been in use since 1972 – but our Keystone Kops were just now getting around to dismantling it. Oh well, better late than never! It’s a 45-acre compound on the Maryland shore, about 60 miles from Washington, a place where Russian diplomats went to relax with their families.

Neighbors said they never saw anything the least bit off, and that the Labor Day picnics to which they were invited featured plenty of really good vodka. The head of the town council, a retired Marine, told the Los Angeles Times: “They’re good neighbors, and have been the whole time they’ve been there.” On New York’s Long Island a similar scenario unfolded: an estate long the site of Russian diplomats relaxing with their families is raided by the feds, and impounded, while baffled locals look on. It’s all part of the security theater performed by Obama’s dead-enders, as they do their best to cast a long shadow over the incoming Trump administration. And like any performance, it comes with a little booklet explaining the provenance of the piece, in this case a “report” reiterating in a most unconvincing manner the assertions we’ve been hearing since Election Day: that Trump’s victory was the culmination of an elaborate Russian conspiracy, a remake of “The Manchurian Candidate,” only this time with computers.

And just to add a little extra frisson to the mix, as the clock ticked toward 2017 the Washington Post ran a story alleging that those omnipotent Russkies had hacked into Vermont’s electricity grid – and were about to turn out the lights! Except they didn’t, they weren’t, and it was all a bit of that “fake news” WaPo has been warning us about. The “Russian malware” was found on a laptop that wasn’t even connected to the internet. And it wasn’t Russian malware, it was Ukrainian. Oh, the drama! Except there wasn’t any – at least, not enough for a Tom Clancy novel. [..] Is Trump about to blow this whole phony “Put did it” scam wide open? It wouldn’t surprise me in the least. What we are seeing playing out is the reaction of the swamp creatures as Trump proceeds to drain their natural habitat. That screeching roaring sound you hear is their collective outrage as the implications of Trump’s triumph become apparent.

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Don’t think Assange ever figured he was going to end up defending Trump.

• Assange: Obama Admin Trying To ‘Delegitimize’ Trump (Hill)

WikiLeaks founder Julian Assange says there’s an “obvious” reason the Obama administration has focused on Russia’s alleged role in Democratic hacks leading up to Donald Trump’s electoral win. “They’re trying to delegitimize the Trump administration as it goes into the White House,” Assange said during an interview with Fox News’s Sean Hannity airing Tuesday night, according to a transcript of excerpts from the network. “They are trying to say that President-elect Trump is not a legitimate president,” Assange said during the interview, which was conducted at the Ecuadorian embassy in London where he has been staying. “Our publications had wide uptake by the American people, they’re all true,” Assange continued. “But that’s not the allegation that’s being presented by the Obama White House.”

Assange reiterated the group’s denial that Russia was the source of the Democratic documents released over the summer. “Our source is not a state party, so the answer for our interactions is no,” he said. In December, Assange told Hannity that the documents the anti-secrecy group received looked “very much like they’re from the Russians” but said his source was not them. When asked if he thought WikiLeaks influenced the 2016 election, Assange pointed to private comments from members of the Democratic National Committee (DNC) and Hillary Clinton’s campaign in documents published by the group. “Did [WikiLeaks] change the outcome of the election? Who knows, it’s impossible to tell,” Assange said. “But if it did, the accusation is that the true statements of Hillary Clinton and her campaign manager, John Podesta, and the DNC head Debbie Wasserman Schultz, their true statements is what changed the election.”

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“He has described Kim as a “maniac”, but suggested in June 2015 that he would be willing to invite Kim to Washington for talks over hamburgers.”

• Trump Says US Safe From North Korean Nuclear Strike – No Thanks To China (G.)

Donald Trump has said no North Korean nuclear bomb will reach the US mainland, a day after the regime in Pyongyang claimed it was close to test-launching an intercontinental ballistic missile (ICBM). The president-elect – who has yet to articulate his incoming administration’s approach to North Korea’s nuclear weapons programme – also took another swipe at China, accusing Beijing of failing to rein in the North’s nuclear ambitions. “North Korea just stated that it is in the final stages of developing a nuclear weapon capable of reaching parts of the US. It won’t happen!” Trump tweeted. It was not clear what Trump meant: whether he believed North Korea was incapable of developing a reliable ICBM, or that the US would prevent it doing so.

He went on to reignite his verbal tit-for-tat with Beijing, this time linking trade to what he called China’s unwillingness to exert pressure on Pyongyang over its nuclear weapons programme. “China has been taking out massive amounts of money and wealth from the US in totally one-sided trade, but won’t help with North Korea. Nice!” [..] Since winning the US presidential election, Trump has not indicated he will abandon the Obama administration’s policy of isolating North Korea. He has described Kim as a “maniac”, but suggested in June 2015 that he would be willing to invite Kim to Washington for talks over hamburgers. North Korea is thought to be some way off developing a nuclear warhead capable of reaching the US, but some experts said Kim’s ICBM claims should be taken seriously, citing the progress that has been made since he became leader in late 2011.

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Zombie country.

• China Needs To Let Companies Go Bust To Support The System – Xie (CNBC)

China posted positive manufacturing numbers this week, but there are more problems that need to be fixed in the system that is acknowledged, an economist said Tuesday. “(You cannot just) focus on overcapacity and not focus on the government policy of subsidizing production or the financial system, that is, basically rolling over non-performing loans to make it look like they are still performing,” said independent economist Andy Xie. “China has been stretching the cycle and trying to roll over all the loans so nobody goes bankrupt,” he told CNBC’s Squawk Box.

The Chinese government, he said, needs to stop boosting industry by subsidizing investment as this will further contribute to over-capacity—which is in turn funded by households invested in the property bubble. “This is destroying household sector demand and you get into a vicious cycle. The industry sector can never become healthy,” he said. Xie’s comments come on the back of the release of China Caixin’s December manufacturing Purchasing Managers’ Index (PMI) which marked its fastest rate of improvement in three years.

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“.. the history of such endeavors shows that people care much more about preserving their wealth than observing the letter of the law…”

• Holes in China’s Currency Wall (BBG)

China’s latest great wall against capital outflows is likely to be as effective at stemming overseas real estate purchases as the real thing was at keeping out invaders.The country’s foreign-exchange regulator is requiring citizens who want to move money abroad to provide extra information on bank forms introduced Jan. 1, including a pledge that the funds won’t be used to purchase property.Beijing has made several attempts in recent months to rein in the nation’s voracious appetite for overseas bricks and mortar. In November, the government imposed a ban on foreign property purchases worth $1 billion or more by state-owned enterprises. Now, even the $50,000 that every individual is allowed to convert each calendar year can henceforth be used only for non-investment purposes such as travel or medical services.

[..] Unofficial conduits for moving money out of China abound. The continued demand for dollar-denominated insurance policies in Hong Kong — even after the use of China UnionPay Co. credit and debit cards was outlawed for such purchases — is evidence enough of that.One popular tactic is known as “smurfing” – breaking sums down into small increments that avoid official scrutiny, named after the little blue cartoon characters who as small individuals constitute a larger whole. People needing to move large amounts out of China can recruit friends and relatives to help carry the load in this way.Offshore trading companies – with the cover of export and import invoicing — have more leeway to move money in and out of the country, offering another route that can be used to finance overseas property purchases.

China has acknowledged a problem with fake invoicing. Still, a more stringent clampdown would risk disrupting trade at a time of weak growth.This is the rub for China’s foreign-exchange regulators. Capital controls are inevitably porous, especially for a country that’s as plugged into the global trade and economic system as China. And the demand for offshore property remains seemingly insatiable.Rich Chinese aim to have at least a third of their wealth outside the country and real estate is their most popular overseas investment, according to the Hurun Research Institute. About 60 percent of individuals surveyed said they plan to buy offshore property in the next three years, the wealth researcher said in an October report.

The reasons for the exodus are well known. China’s economy is slowing, domestic real estate is becoming increasingly unaffordable and the yuan is depreciating. In these circumstances, foreign property promises capital preservation. Until these fundamental factors turn around, Chinese authorities will be pushing against the tide.The greatest value of the latest controls may be in the signal they send to the general population: China is serious about reining in outflows, and those who are caught abusing the system will be dealt with severely. That may give some buyers pause. But the history of such endeavors shows that people care much more about preserving their wealth than observing the letter of the law. This is another clampdown that will fail.

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That’s just hilarious. Marco Polo here we come.

• China Starts 7,500 Mile Freight Train to London as Xi Boosts Trade Ties (BBG)

China started a freight train to London as part of President Xi Jinping’s efforts to strengthen trade ties with Europe, Xinhua reported, citing state-owned China Railway Corp. The train, departing from Yiwu in eastern Zhejiang province, will cover more than 12,000 kilometers (7,500 miles) in about 18 days before reaching the British city, carrying goods such as garments, bags and suitcases among other items, Xinhua said Monday. The freighter will pass through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France.

London is the 15th city in Europe to be added to China’s freight train services to the continent as Xi seeks to reinforce commercial links with markets across Asia, Africa, the Middle East and Europe. In 2013, Xi unveiled his so-called Belt-and-Road initiative, making transport lines the centerpiece of his efforts to create a modern Silk Road. China has initially set aside about $40 billion in a fund to finance roads and railways abroad under the plan, while the nation’s trade with countries along the routes could reach $2.5 trillion in about a decade, Yao Gang, the then vice chairman of China Securities Regulatory Commission, said in 2015.

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It’s misleading to call this basic income. It leads away from the real thing.

• Finland Trials Basic Income For Unemployed (AP)

Finland has become the first country in Europe to pay its unemployed citizens a basic monthly income, amounting to €560 (£477/US$587), in a unique social experiment that is hoped to cut government red tape, reduce poverty and boost employment. Olli Kangas from the Finnish government agency KELA, which is responsible for the country’s social benefits, said on Monday that the two-year trial with 2,000 randomly picked citizens receiving unemployment benefits began on 1 January. Those chosen will receive €560 every month, with no reporting requirements on how they spend it. The amount will be deducted from any benefits they already receive. The average private sector income in Finland is €3,500 per month, according to official data.

Kangas said the scheme’s idea was to abolish the “disincentive problem” among the unemployed. The trial aimed to discouraged people’s fears “of losing out something”, he said, adding that the selected persons would continue to receive the €560 even after receiving a job. A jobless person may currently refuse a low-income or short-term job in the fear of having his financial benefits reduced drastically under Finland’s generous and complex social security system. “It’s highly interesting to see how it makes people behave,” Kangas said. “Will this lead them to boldly experiment with different kinds of jobs? Or, as some critics claim, make them lazier with the knowledge of getting a basic income without doing anything?”

The unemployment rate of Finland, a nation of 5.5 million, stood at 8.1% in November with some 213,000 people without a job – unchanged from the previous year. The scheme is part of the measures by the centre-right government of Finland’s prime minister, Juha Sipila, to tackle unemployment. Kangas said the basic income experiment may be expanded later to other low-income groups such as freelancers, small-scale entrepreneurs and part-time workers.

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Obama’s legacy is not what it seems.

• US Special Operations Numbers Surge In Africa’s Shadow Wars (I’Cept)

Africa has seen the most dramatic growth in the deployment of America’s elite troops of any region of the globe over the past decade, according to newly released numbers. In 2006, just 1% of commandos sent overseas were deployed in the U.S. Africa Command area of operations. In 2016, 17.26% of all U.S. Special Operations forces – Navy SEALs and Green Berets among them – deployed abroad were sent to Africa, according to data supplied to The Intercept by U.S. Special Operations Command. That total ranks second only to the Greater Middle East where the U.S. is waging war against enemies in Afghanistan, Iraq, Syria, and Yemen. “In Africa, we are not the kinetic solution,” Brigadier General Donald Bolduc, the chief of U.S. Special Operations Command Africa, told African Defense, a U.S. trade publication, early this fall. “We are not at war in Africa – but our African partners certainly are.”

That statement stands in stark contrast to this year’s missions in Somalia where, for example, U.S. Special Operations forces assisted local commandos in killing several members of the militant group, al-Shabab and Libya, where they supported local fighters battling members of the Islamic State. These missions also speak to the exponential growth of special operations on the continent. As recently as 2014, there were reportedly only about 700 U.S. commandos deployed in Africa on any given day. Today, according to Bolduc, “there are approximately 1,700 [Special Operations forces] and enablers deployed… at any given time. This team is active in 20 nations in support of seven major named operations.” Using data provided by Special Operations Command and open source information, The Intercept found that U.S. special operators were actually deployed in at least 33 African nations, more than 60% of the 54 countries on the continent, in 2016.

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Debt Rattle May 26 2016

May 262016
 
 May 26, 2016  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , , ,  7 Responses »


NPC Graf Zeppelin over Capitol 1928

• Britain’s Property Market Is Going To Implode (BI)
• Trillions in Debt—but for Now, No Reason to Worry (WSJ)
• IMF: No Cash Now for Greece Because Europe Hasn’t Promised Debt Relief (WSJ)
• China’s ‘Feud’ Over Economic Reform Reveals Depth Of Xi’s Secret State (G.)
• Chinese Officials To Ask US Counterparts When Fed Will Raise Rates (BBG)
• Fear Of UK Steel Sector’s ‘Death By 1,000 Cuts’ (Tel.)
• Varoufakis: Australia Lives In A Ponzi Scheme (G.)
• Venezuela Sells Gold Reserves As Economy Worsens (FT)
• Wall Street Crime: 7 Years, 156 Cases and Few Convictions (WSJ)
• Quantitative Easing and the Corruption of Corporate America (DMB)
• Brexit, And The Return Of Political Lying (Oborne)
• We Have Entered The Looting Stage Of Capitalism (PCR)
• France Digs In to Endure Oil Strike With Release of Fuel Reserve (BBG)
• Union Revolt Puts Both Hollande’s Future And France’s Image On The Line (G.)
• Bayer Could Get ECB Financing For Monsanto Bid (R.)
• Putin Closes The Door To Monsanto (DDP)

No doubt here. Ditto for all bubbles.

• Britain’s Property Market Is Going To Implode (BI)

Property prices in Britain may be surging due to a horrendous imbalance of supply and demand — but the market is poised to implode. Why? Because Britons are not earning enough money to either get on the housing ladder or are spending such a large portion of their wages on mortgages that may not be sustainable. Well, not unless everyone suddenly gets a huge pay rise over the next year or so. That’s the assumption in the latest figures from think tank Resolution Foundation, which show that lower- and middle-income households are spending 26% of their salaries on housing, compared to 18% back in 1995. In London, households spend 28% of their income on housing. The think tank said this is the equivalent to adding 10 percentage points onto income tax.

Only the rich are not feeling the pressure of rising house prices. Higher-income households spend 18% of their income on housing, compared to 14% in 1995. The average price to buy a house in Britain now stands at £291,504, according to the Office for National Statistics. Meanwhile, the average London property price is at a huge £551,000. To put this into perspective, Resolution Foundation estimated that median income, at £24,300, is only around 3% higher than it was when the credit crunch hit in 2007/2008. [..] the house price-to-earnings ratio is near the pre-crisis peak. Considering the average deposit to secure a home is around 10% of the total property price, this means Britons are taking on huge amounts of debt and eating into the little savings they have to buy a home.

[..] the market is poised on a knife edge between interest rates and wages. If interest rates were to rise — and they will eventually — it could prove a major problem for the Britons who already spend 25-28% of their salaries on housing. Similarly, if another downturn depresses wages, mortgage payments will become an increasing portion of their income even without an interest rate increase. That situation is pricing out low- and middle-income people from the market, as the chart shows. Ownership rates in this group have sunk from nearly 60% in 1997 to just 25% today. That’s how fragile the housing market is: With those buyers unable to afford to buy, the market is dependent on a thinner slice of owners, whose incomes are increasingly stretched by housing costs, who can’t afford a decrease in wages, and who may not be able to afford any increase in interest.

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“Global debt—including households, businesses and governments—has risen from 221% of GDP at the end of 2008 to 242% at the end of the first quarter.”

• Trillions in Debt—but for Now, No Reason to Worry (WSJ)

If current trends persist through the end of the year, U.S. households will owe as much as they did at the peak of borrowing in 2008. Global debt has already topped 2008 levels and keeps rising. That’s pretty astonishing so soon after debt-driven crises in the U.S. and Europe and endless worries about too much borrowing in Japan, China and emerging markets. But for all the hand-wringing, a near-term debt crisis is unlikely. Lower interest rates mean debt payments are far lower than they were before the crisis. In the U.S., household debt compared with the overall economy is way down. And overseas, loans can easily be rolled over. Yet even with low rates, the cycle of borrowing and rolling over loans has a cost. People, governments and businesses spend now instead of later, likely reducing future growth.

The cycle also allows borrowing to go on for years, which can be good—allowing reform to take hold—or not, allowing bad policies to go on almost indefinitely. U.S. households owed $12.25 trillion at the end of the first quarter, up 1.1% from the end of 2015, according to the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, released Tuesday. If the first quarter repeats itself through the end of the year, U.S. household debt will approach its peak of $12.68 trillion, which it hit in the third quarter of 2008. Many people remember that quarter because it’s when the global financial system went off a cliff. This time is different because short-term interest rates have been stuck near zero since then. For U.S. consumers, that means household debt-service payments as a percent of disposable personal income are at their lowest level since at least 1980, despite a much higher debt load. In addition, more loans are going to higher-quality borrowers.

[..] Low rates have had an even more dramatic impact overseas, where economies are weaker or less stable. Global debt—including households, businesses and governments—has risen from 221% of GDP at the end of 2008 to 242% at the end of the first quarter. But the cost of interest payments, as a share of GDP, has fallen to 7% from a peak of 11%, according to J.P. Morgan. Japan is the prime example of how low interest rates can change the rules of the game. At 400% of GDP, Japan’s debt level is by far the highest in the world. One of the great mysteries of finance is why investors lend the government money for negligible or negative yields when it seems impossible for Japan to pay off its debt.

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“..no one does what’s in Greece’s best interests..”

• IMF: No Cash Now for Greece Because Europe Hasn’t Promised Debt Relief (WSJ)

A senior IMF official Wednesday said it can’t help Europe with fresh emergency financing for Greece because Athens’s creditors haven’t yet committed to detailed debt relief. The comments show that the agreement touted by European finance ministers last night to release fresh bailout cash for Greece hasn’t nailed down the key elements the IMF says are critical to finally return the debt-laden country to health. Rather, the IMF’s reserved support for the deal has paved the way for Germany to approve new funds and sets the stage for more tough negotiations later this year. “Fundamentally, we need to be assured that the universe of measures that Europe will to commit to…is consistent with what we think is needed to reduce debt,” the senior official told reporters on a conference call. “We do not yet have that.”

But the official said Europe’s acknowledgment that debt relief is needed and would be detailed later this year was enough to win the fund’s conditional backing. “All the stakeholders now recognize that Greek debt is…highly unsustainable,” the official said. “They accept that debt relief is needed, they accept the methodology that is needed to calibrate the necessary debt relief. They accept the objectives of gross financing needs in the near term and in the long run. They even accept the time tables.” Many outside economists see the deal as papering over the differences and once again prolonging the crisis. “Summary of Eurogroup: Germany always wins, IMF caves under pressure from Germany and U.S., no one does what’s in Greece’s best interests,” said Megan Greene at Manulife and John Hancock Asset Management. Marc Chandler at investment bank Brown Brothers Harriman called the deal a “paper charade” that saves Europe more than it does Greece.

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Li wants more debt, Xi at least sees the danger in that.

• China’s ‘Feud’ Over Economic Reform Reveals Depth Of Xi’s Secret State (G.)

It was hardly a headline to set the pulse racing. “Analysing economic trends according to the situation in the first quarter: authoritative insider talks about the state of China’s economy,” read the front page of the Communist party’s official mouthpiece on the morning of Monday 9 May. Yet this headline – and the accompanying 6,000-word article attacking debt-fuelled growth – has sparked weeks of speculation over an alleged political feud at the pinnacle of Chinese politics between the president, Xi Jinping, and the prime minister, Li Keqiang, the supposed steward of the Chinese economy.

“The recent People’s Daily interview not only exposes a deep rift between [Xi and Li], it also shows the power struggle has got so bitter that the president had to resort to the media to push his agenda,” one commentator said in the South China Morning Post. “Clear divisions have emerged within the Chinese leadership,” wrote Nikkei’s Harada Issaku, claiming the two camps were “locking horns” over whether to prioritise economic stability or structural reforms. The 9 May article – penned by an unnamed yet supposedly “authoritative” scribe – warned excessive credit growth could plunge China into financial turmoil, even wiping out the savings of the ordinary citizens.

As if to hammer that point home, a second, even longer article followed 24 hours later – this time a speech by Xi Jinping – in which the president laid out his vision for the Chinese economy and what he called supply-side structural reform. “Taken together, the articles signal that Xi has decided to take the driver’s seat to steer China’s economy at a time when there are intense internal debates among officials over its overall direction,” Wang Xiangwei argued in the South China Morning Post. Like many observers, he described the front page interview as a “repudiation” of Li Keqiang-backed efforts to prop up economic growth by turning on the credit taps.

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“A less aggressive Fed stance is in China’s interest.” Look, the dollar will rise no matter what the Fed does. China must devalue.

• Chinese Officials To Ask US Counterparts When Fed Will Raise Rates (BBG)

Chinese officials plan to ask their American counterparts in annual talks next month about the chance of a Fed interest-rate increase in June, according to people familiar with the matter. The Chinese delegation will try to deduce whether a June or a July rate rise is more likely, as their nation’s policy makers prepare for the potential impact on financial markets and the yuan, the people said, asking not to be named as the discussions were private. In China’s view, if the Fed does lift borrowing costs, a July move would be preferable, the people said. China’s exchange rate has already been weakening as expectations rise for the U.S. central bank to boost its benchmark rate for the first time since it ended its near-zero policy in December with a quarter%age point increase.

It’s not unusual for senior officials to press each other on their policies, and any inquiries by the Chinese about the Fed would follow repeated expressions of concern from the U.S. about China’s intentions with its exchange rate. The Treasury Department put China on a new currency watch list last month to monitor for unfair trade advantages. “The Chinese side will argue that the U.S. should tread cautiously as it tightens monetary policy and avoid any surprises,” said Mark Williams, chief Asia economist at Capital Economics in London, who participated in U.K.-China meetings when working at Britain’s Treasury. “The Federal Reserve will make its decision solely on what it deems best for the U.S. economy, but it is clear that concerns about China have influenced its thinking about the balance of risks facing the U.S.”

[..] “Chinese officials are pretty anxious about the Fed as a June rate hike – which is not fully discounted in the market – may boost the dollar,” said Shen Jianguang, chief Asia economist at Mizuho in Hong Kong. “This could pose a threat or make it difficult for the PBOC to keep a stable RMB exchange rate,” he said, referring to the People’s Bank of China’s management of the renminbi, another term for the yuan. “A less aggressive Fed stance is in China’s interest.”

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Trying to rewrite UK pensions laws just to sell one company. Wow.

• Fear Of UK Steel Sector’s ‘Death By 1,000 Cuts’ (Tel.)

Tata has refused to rule out holding on to its crisis-hit British steel division, raising fears that the business could suffer “a death by a thousand cuts”. Delivering annual results for the Tata’s global steel business, Koushik Chatterjee, executive director, declined to give details on the board’s thoughts on the seven bids the company has received for the loss-making UK plants. But pressed on whether Tata could do a U-turn and hold on to the business – which the Government has said it is willing to take a 25pc stake in and offer financial support to if this will keep it alive – he refused to deny this was an option “I don’t think we have a case as yet,” said Mr Chatterjee. “There is lots of focus only on a sale.” The results announcement – which showed Tata Steel’s revenues down 6pc to £11.9bn and an annual loss of £309m – echoed Mr Chatterjee, saying: “The board… is actively reviewing all options for the Tata Steel UK business, including a potential sale.”

Sajid Javid, the Business Secretary, met with Tata’s directors on Monday night for several hours ahead of their monthly meeting, which considered the bids. It is thought Mr Javid sees Tata keeping the UK business as a way of retaining a viable steel industry in the Britain, after bidders signalled their reluctance to take on the Tata pension scheme, which has a £500m deficit. Ministers are this week expected to start consultations on controversial proposals to restructure the pension scheme [..] The changes would alter the way pension payments are calculated by swapping from RPI inflation to the lower CPI, potentially shaving billions from the scheme’s liabilities. However, such a move would require a change off law and could set what some pensions experts have described as a dangerous precedent.

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Like Britain, like New Zealand, like Canada.

• Varoufakis: Australia Lives In A Ponzi Scheme (G.)

Varoufakis’s answers are quick, sharp and eloquent – and ready. He barely needs a pause when asked what he’d do if suddenly installed as Australia’s treasurer, before he’s firing off a prescription for the economy. “The first thing that has to happen in this country is to recognise two truths that are escaping this electorate, and especially the elites. “Firstly, Australia does not have a debt problem. The idea that Australia is on the verge of becoming a new Greece would be touchingly funny if it were not so catastrophic in its ineptitude. Australia does not have a public debt problem, it has a private debt problem. “Truth number two: the Australian social economy is not sustainable as it is. At the moment, if you look at the current account deficit, Australia lives beyond its means – and when I say Australia, I mean upper-middle-class people. The luxurious lifestyle is not supported by the Australian economy.

It’s supported by a bubble, and it is never a good idea to rely on the proposition that a bubble will always be there to support you. “So private debt is the problem. And secondly, because of this private debt, you have a bubble, which is constantly inflated through money coming into this country for speculative purposes.” Varoufakis is unequivocal in his conviction that current growth – which he likens to a Ponzi scheme – needs to be replaced with growth that comes from producing goods. “Australia is switching away from producing stuff. Even good companies like Cochlear, who have been very innovative in the past, have been financialised. They’re moving away from doing stuff to shuffling paper around. That would be my first priority [if I were Australian treasurer]: how to go back to actually doing things.”

Varoufakis wouldn’t be the first to compare the Australian economy to a Ponzi scheme. Economist Lindsay David has made a similar criticism of the housing market, and has also heavily criticised Australia’s reliance on Chinese investment. David and fellow economist Philip Soos have predicted the economy is heading for a crash, and Varoufakis thinks they might be right. He is quick to point out that crashes can never be predicted, but he is in little doubt that it will happen if Australia doesn’t change direction soon. “There is no doubt, if you look at the pace of house prices over the past 20 years in Australia and the pace of value creation; they’re so out of kilter that something has to give.”

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US revenge on Chavez is nearing completion.

• Venezuela Sells Gold Reserves As Economy Worsens (FT)

Venezuela’s gold reserves have plunged to their lowest level on record after it sold $1.7 billion of the precious metal in the first quarter of the year to repay debts. The country is grappling with an economic crisis that has left it struggling to feed its population. The OPEC member’s gold reserves have dropped almost a third over the past year and it sold over 40 tonnes in February and March, according to IMF data. Gold now makes up almost 70% of the country’s total reserves, which fell to a low of $12.1 billion last week. Venezuela has larger crude reserves than Saudi Arabia but has been hard hit by years of mismanagement and, more recently, depressed prices for oil. Oil accounts for 95% of its export earnings. Despite the recent price rebound, declining oil output is likely to take a further toll on the economy. The IMF forecasts the economy will shrink 8% this year, and 4.5% in 2017, after a 5.7% contraction in 2015.

Inflation is forecast to exceed 1,642% next year, fueled by printing money to fund a fiscal deficit estimated at about 20% of GDP. Venezuela began selling its gold reserves in March 2015, according to IMF data. At roughly 367 tonnes, Venezuela has the world’s 16th-biggest gold reserves, according to the World Gold Council. In contrast, China and Russia both added to their gold holdings this year, the data show. Gold prices have risen 15% this year. Last year Venezuela’s central bank swapped part of its gold reserves for $1 billion in cash through a complex agreement with Citi. The late president Hugo Chávez had said he would free Venezuela from the “dictatorship of the dollar” and directed the central bank to ditch the US dollar and start amassing gold instead. In 2011, as a safeguard against market instability, Chávez brought most of the gold stored overseas back to Caracas.

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What an incredible charade this has turned into.

• Wall Street Crime: 7 Years, 156 Cases and Few Convictions (WSJ)

The Wall Street Journal examined 156 criminal and civil cases brought by the Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission against 10 of the largest Wall Street banks since 2009. In 81% of those cases, individual employees were neither identified nor charged. A total of 47 bank employees were charged in relation to the cases. One was a boardroom-level executive, the Journal’s analysis found. The analysis shows not only the rarity of proceedings brought against individual bank employees, but also the difficulty authorities have had winning cases they do bring. Most of the bankers who were charged pleaded guilty to criminal counts or agreed to settle a civil case, with those facing civil charges paying a median penalty of $61,000.

Of the 11 people who went to trial or a hearing and had a ruling on their case, six were found not liable or had the case dismissed. That left a total of five bank employees at any level against whom the government won a contested case. They include Mr. Heinz, the former UBS employee. One of the few successful government cases was overturned Monday. A federal appeals court tossed civil mortgage-fraud charges and a $1 million penalty against Rebecca Mairone, a former executive at Countrywide Financial Corp., now part of Bank of America Corp. The court also threw out a related $1.27 billion penalty against Bank of America. Representatives of Ms. Mairone and the bank this week welcomed the verdict, while the Justice Department, which brought the cases, declined to comment.

There are plenty of possible explanations for the small number of successful cases. For starters, much of the institutional conduct during and after the financial crisis didn’t break the law, said law-enforcement officials. Even when the government has been able to prove illegal activity, it has rarely been traced to the upper echelons of big banks. “The typical scenario is not that the bank has this plan for world domination being cooked up by the chairman and CEO,” said Adam Pritchard, a law professor at the University of Michigan. “It’s some midlevel employee trying to keep his job or his bonus, and as result the bank gets into trouble.”

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“The Fed might want to imitate the ECB but may be restricted from doing so by its charter..” “We wouldn’t discount the possibility it will try to amend, or get around, any prohibitions, however.”

• Quantitative Easing and the Corruption of Corporate America (DMB)

[..] corporate leverage is hovering near a 12-year high and domestic capital expenditures have plunged. In the interim, reams of commentary have been devoted to share buybacks and with good reason. Companies reducing their share count have, at least in recent years, been where the hottest action is, courtyard-seat level action. But now, it looks as if the trend is finally cresting. A fresh report by TrimTabs found that companies have announced 35% less in buybacks through May 19th compared with the same period last year. And while $261.5 billion is still respectable (for the purpose of placating shareholders), it is nevertheless a steep decline from 2015’s $399.4 billion. Even this tempered number is deceiving – only half the number of firms have announced buybacks vs last year.

Have U.S. executives and their Boards of Directors finally found religion? We can only hope. The devastation wrought by the multi-trillion-dollar buyback frenzy is what many of us learned in Econ 101 as the ‘opportunity cost,’ or the value of what’s been foregone. As yet, the value of lost investment opportunities remains a huge unknown. In the event doing right by future generations does not suffice, executives might be motivated to renounce their errant ways because shareholders appear to have stopped rewarding buybacks. According to Marketwatch, an exchange traded fund that affords investors access to the most aggressive companies in the buyback arena is off 0.8% for the year and down 9.8% over the last 12 months.

The hope is that Corporate America is at the precipice of an investment binge that sparks economic activity that richly rewards those with patience over those with the burning need for instant gratification. The risk? That central bankers whisper sweet nothings the likes of which no Board or CFO can resist. Mario Draghi may already have done so. In announcing its latest iteration of QE, the ECB added investment grade corporate bonds to the list of eligible securities that can satisfy its purchase commitment. Critically, U.S. multinationals with European operations are included among qualifying issuers. As Evergreen Gavekal’s David Hay recently pointed out, McDonald’s has jumped right into the pool, issuing five-year Euro-denominated paper at an interest rate of a barely discernible 0.45%.

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Yeah, like it was ever gone.

• Brexit, And The Return Of Political Lying (Oborne)

During the run-up to the Iraq invasion, intelligence officers would hand ministers an estimate, an allegation, a straw in the wind, in certain cases (the 45-minute claim being the most notorious example) an outright fabrication. Tony Blair’s office would then bless it with the imprimatur of a government assessment, usually employing vague wording — in the hope that the media would repeat and then amplify the message. Cameron and Osborne have become masters of this kind of politics. ‘We’re paying down Britain’s debts,’ said David Cameron in 2013. This was a straight lie: the national debt was soaring as he spoke. ‘When I became Chancellor,’ observed Osborne last year, ‘debt was piling up.’ True – and he has been piling it up ever since, even now rising by £135 million a day.

This kind of deception works: polls show that only a minority of voters realise that the national debt is still rising. George Osborne has now converted the Treasury into a partisan tool to sell the referendum, exactly as Tony Blair used the Joint Intelligence Committee to make the case for war against Iraq. Before becoming Chancellor, Osborne was critical of Gordon Brown’s Treasury, and rightly so, because it had been so heavily politicised. He rightly stripped the Treasury of its forecasting function and created an independent Office for Budget Responsibility — an encouraging sign that he was determined to avoid the culture of deceit which was such a notable feature of the Brown/Blair era. It is therefore very troubling that the Office for Budget Responsibility has not come anywhere near the two Treasury dossiers that make the case for the EU.

It’s easy to see why – they would point out straight away that the Chancellor has been engaged in fabrication. For example, let’s take a hard look at how he induced Treasury officials to endorse his central claim that families would be £4,300 ‘worse off’ if Britain left the EU. The main technique that Osborne used was his conflating GDP with household income – and referring to ‘GDP per household’, a phrase that has never been used in any Budget. As the Chancellor used to argue, GDP is a misleading indicator which can be artificially inflated by immigration. Immigration of 5% may well raise GDP by the same amount, but nobody would be any better off. ‘GDP per capita is a much better indicator,’ said Osborne when newly in office. He made no mention at all of GDP per capita when launching the Brexit documents published by the Treasury.

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“We have entered the looting stage of capitalism. Desolation will be the result.” Paul Craig Roberts doesn’t hold back.

• We Have Entered The Looting Stage Of Capitalism (PCR)

Having successfully used the EU to conquer the Greek people by turning the Greek “leftwing” government into a pawn of Germany’s banks, Germany now finds the IMF in the way of its plan to loot Greece into oblivion . The IMF’s rules prevent the organization from lending to countries that cannot repay the loan. The IMF has concluded on the basis of facts and analysis that Greece cannot repay. Therefore, the IMF is unwilling to lend Greece the money with which to repay the private banks. The IMF says that Greece’s creditors, many of whom are not creditors but simply bought up Greek debt at a cheap price in hopes of profiting, must write off some of the Greek debt in order to lower the debt to an amount that the Greek economy can service.

The banks don’t want Greece to be able to service its debt, because the banks intend to use Greece’s inability to service the debt in order to loot Greece of its assets and resources and in order to roll back the social safety net put in place during the 20th century. Neoliberalism intends to reestablish feudalism—a few robber barons and many serfs: the 1% and the 99%. The way Germany sees it, the IMF is supposed to lend Greece the money with which to repay the private German banks. Then the IMF is to be repaid by forcing Greece to reduce or abolish old age pensions, reduce public services and employment, and use the revenues saved to repay the IMF. As these amounts will be insufficient, additional austerity measures are imposed that require Greece to sell its national assets, such as public water companies and ports and protected Greek islands to foreign investors, principallly the banks themselves or their major clients.

So far the so-called “creditors” have only pledged to some form of debt relief, not yet decided, beginning in 2 years. By then the younger part of the Greek population will have emigrated and will have been replaced by immigrants fleeing Washington’s Middle Eastern and African wars who will have loaded up Greece’s unfunded welfare system. In other words, Greece is being destroyed by the EU that it so foolishly joined and trusted. The same thing is happening to Portugal and is also underway in Spain and Italy. The looting has already devoured Ireland and Latvia (and a number of Latin American countries) and is underway in Ukraine. The current newspaper headlines reporting an agreement being reached between the IMF and Germany about writing down the Greek debt to a level that could be serviced are false. No “creditor” has yet agreed to write off one cent of the debt.

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Euro Cup starts in a few weeks, but “The French government said it was prepared to endure weeks of strikes at refineries..” Oh, sure.

• France Digs In to Endure Oil Strike With Release of Fuel Reserve (BBG)

The French government said it was prepared to endure weeks of strikes at refineries and began releasing strategic oil reserves to help ease nationwide fuel shortages. While panic-buying by motorists drove demand to three times the normal level Tuesday, France has enough stocks even if the strikes persist for weeks, Transport Minister Alain Vidalies said. The problem isn’t about supply but about delivery, he said. Oil companies have mobilized hundreds of trucks to ship diesel and gasoline around the country since the start of the week as filling stations ran dry after all the nation’s refineries experienced disruptions or outright shutdowns. By Wednesday Exxon Mobil reported that its Gravenchon plant was operating normally and able to transport fuel while elsewhere strikers have blocked refineries to try to bring shipments to a halt.

Workers are protesting against President Francois Hollande’s plans to change labor laws to reduce overtime pay and make it easier to fire staff in some cases. While the government has watered down its proposals since first floating them in February, unions are calling for them to be scrapped altogether. The new law will not be withdrawn and police will continue to ensure access to fuel depots, Prime Minister Manuel Valls told Parliament Wednesday. Total’s Feyzin refinery near Lyon and its Normandy plant have stopped production. La Mede was working at a lower rate Wednesday, while the facilities at Grandpuits near Paris and Donges close to Nantes will come to a complete halt later this week, according to a company statement.

Total may reconsider a plan to spend €500 million to upgrade the Donges facility as workers take the plant “hostage,” CEO Patrick Pouyanne said Tuesday. He urged motorists not to rush to gas stations and create an “artificial” shortage. Some 348 of Total’s 2,200 gas stations ran out of fuel and 452 faced partial shortages as of Wednesday morning, the company said. The figures are little changed from Tuesday. About one in five of the country’s 12,200 stations were facing shortages Tuesday afternoon, the government said.

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All Marine Le Pen has to do is to sit back and watch.

• Union Revolt Puts Both Hollande’s Future And France’s Image On The Line (G.)

As smoke rises from burning tyres on French oil refinery picket-lines, motorists queue for miles to panic-buy rationed petrol, and train drivers and nuclear staff prepare to go on strike. With the 2017 French presidential election nearing, the Socialist president François Hollande is facing his toughest and most explosive crisis yet. It is not just Hollande’s political survival at stake, though, but the image of France itself. The country is preparing to host two million visitors at the showpiece Euro 2016 football tournament in two weeks, and the back-drop is not ideal: strikes and feared fuel shortages, potential transport paralysis, a terrorist threat, a state of emergency and a mood of heightened tension and violence between street protesters and police.

Hollande, the least popular leader in modern French history whose approval ratings are festering, according to various polls, at between 13% and 20%, might not seem as though he has further to fall. But in fact he is clinging, white-knuckled, to the edge of a cliff. The Socialist was supposed to be spending May and June testing the waters for a possible re-election bid by repeating his new mantra “things are getting better” – even if more than 70% of French people don’t believe that that is true. Instead, France has been hit by an explosive trade union revolt over Hollande’s contested labour reforms. The beleaguered president has framed these reforms as a crucial loosening of France’s famously rigid labour protections, cutting red-tape and slightly tweaking some of the more cumbersome rules that deter employers from hiring.

This would, he has argued, make France more competitive and tackle stubborn mass employment that tops 10% of the workforce. But after more than two months of street demonstrations against the labour changes, the hardline leftist CGT union radically upped its strategy and is now trying to choke-off the nation’s fuel supply to force Hollande to abandon the reforms.

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Win win win squared. That’s why you feel so happy right now; look in the mirror. You get to finance a winning proposition!

• Bayer Could Get ECB Financing For Monsanto Bid (R.)

Bayer could receive financing from the European Central Bank that would help to fund a takeover of Monsanto, according to the terms of the ECB’s bond-buying program. U.S.-based Monsanto, the world’s largest seed company, turned down Bayer’s $62 billion bid on Tuesday, but said it was open to further negotiations. The ECB can buy bonds issued by companies that are based in the euro area, have an investment-grade rating and are not banks, provided that they are denominated in euros and meet certain technical requirements. The purpose for which the bonds are issued is not among the criteria set by the ECB, which will start buying corporate bonds on the market and directly from issuers next month.

This means that, in theory, the ECB could buy debt issued by Bayer, which said on Monday it would finance its cash bid for Monsanto with a combination of debt and equity. “It will be interesting to observe how much of such a deal would be absorbed by the central bank,” credit analysts at UniCredit wrote in a note. The ECB is buying €80 billion worth of assets every month in an effort to revive economic growth in the euro zone by lowering borrowing costs. Central bank sources told Reuters that it would not be the ECB’s first choice if the money it spent ended up financing acquisitions. But even this would have a silver lining if consolidation made an industry or sector more efficient and if it gave fresh impetus to the stock market, the source added. And if issuers ended up exchanging the euros raised through bond sales for dollars, that would also help the euro zone by weakening the euro against the greenback, the sources said.

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“Russia is able to become the largest world supplier of healthy, ecologically clean and high-quality food which the Western producers have long lost..”

• Putin Closes The Door To Monsanto (DDP)

Russia’s Vladimir Putin is taking a bold step against biotech giant Monsanto and genetically modified seeds at large. In a new address to the Russian Parliament Thursday, Putin proudly outlined his plan to make Russia the world’s ‘leading exporter’ of non-GMO foods that are based on ‘ecologically clean’ production. Perhaps even more importantly, Putin also went on to harshly criticize food production in the United States, declaring that Western food producers are no longer offering high quality, healthy, and ecologically clean food. “We are not only able to feed ourselves taking into account our lands, water resources – Russia is able to become the largest world supplier of healthy, ecologically clean and high-quality food which the Western producers have long lost, especially given the fact that demand for such products in the world market is steadily growing,” Putin said in his address to the Russian Parliament.

And this announcement comes just months after the Kremlin decided to put a stop to the production of GMO-containing foods, which was seen as a huge step forward in the international fight to fight back against companies like Monsanto. Using the decision as a launch platform, it’s clear that Russia is now positioning itself as a dominant force in the realm of organic farming. It even seems that Putin may use the country’s affinity for organic and sustainable farming as a centerpiece in his economic strategy. “Ten years ago, we imported almost half of the food from abroad, and were dependent on imports. Now Russia is among the exporters. Last year, Russian exports of agricultural products amounted to almost $20 billion – a quarter more than the revenue from the sale of arms, or one-third the revenue coming from gas exports,” he added.

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